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At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
On a generally "green" day for the markets, Intel (Nasdaq: INTC ) shareholders were feeling notably "blue" yesterday. One of their firmest backers, Standpoint Research, called it a day, closing out its "buy" recommendation, downgrading the stock to "hold."
Says Standpoint: "The news [of a compromise on tax cuts] last night from President Obama could trigger a 4%-8% year-end rally" which will act primarily to the benefit of high-beta, lower quality stock names. Intel, in contrast, is the kind of "megacap, low-beta name" that tends to underperform in a rocket-stock market. So while Standpoint still considers Intel "attractive at 11X estimates for 2011 with a 2.8% dividend yield," the analyst sees its chances of outperforming a juiced stock market as passing slim -- and suggests investors seek their profits elsewhere. Is that good advice?
Let's go to the tape
Earlier this week, I critiqued Standpoint's record elsewhere in the tech sector -- Communications Equipment stocks such as Corning (NYSE: GLW ) , to be precise -- where it's proven a particularly poor performer. Let me today, therefore, give praise where it's due:
When it comes to picking semiconductor stocks, Standpoint's cautious approach is currently yielding superb results. Furthermore, Standpoint's skill in finding the best companies that use semiconductors in their products appears above-par as well:
Standpoint's Picks Beating
|Volterra (Nasdaq: VLTR )||Outperform||***||14 points|
|Hewlett-Packard (NYSE: HPQ )||Outperform||***||6 points (picked twice)|
|Dell (Nasdaq: DELL )||Outperform||**||1 points (picked twice)|
In total, 100% of Standpoint's two semiconductor picks have outperformed the market; 57% of its seven picks in the Computers & Peripherals industry are likewise earning investors outsized gains. In short, this is one area of the market where Standpoint appears proficient. As such, the analyst's advice to "declare victory and go home" (I'm paraphrasing, here) is probably sound ... if that is, you've something to declare victory about.
Good for you, but what's in it for me?
You see, key to understanding Standpoint's Intel advice this week is this little gem: "We picked Intel off its bottom on September 9 and ... the shares are up 22.51% for us in three months ... but it is unlikely we will see additional out-performance versus the S&P from this point forward and that is our main concern..."
In case that wasn't blunt enough for you, Standpoint emphasizes: "All we were looking for here was a capture of the market over-reaction (20%) sell-off in this name from August." Now that Standpoint's made its 20%, it's happy to call it a day. (What was that, Cramer? "Bulls make money, bears make money, but pigs get slaughtered," you say? Yeah. That's about the sum of it.)
To be clear, though, Standpoint is most definitely not saying that Intel is overpriced today. And the analyst is not urging you to sell the shares if you are under-weight tech and or with a high beta portfolio (as there may be less downside risk with Intel if the market reverses and heads lower). In other words, if you don't have 20% worth of Intel profits already in the bag, you might very well want to buy this stock at the aforementioned "11X estimates for 2011 with a 2.8% dividend yield."
Foolish final thought
I have to say, that sounds like sound analysis to me. Intel's not my favorite name in tech, I'll admit. Its free cash flow lags reported GAAP earnings by a small-but-significant margin. Still, I can think of worse things than being asked to pay 11 times earnings, or 12 times free cash flow, for a semiconductor oligopolist growing at a 12% annual clip, and paying a 2.8% dividend. Intel's growing faster than Advanced Micro Devices (NYSE: AMD ) , for example, and its earnings are both more stable, and of higher quality, than AMD's. And of course, you already know what I think about the free cash flow picture at Texas Instruments (NYSE: TXN ) . (Click on the previous link if you don't.)
Long story short, Intel may not be as cheap as it once was -- but it's still a heckuva deal, and a heckuvalot better than the alternatives.