This Just In: Upgrades and Downgrades

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." While the pinstripe-and-wingtip crowd is entitled to its opinions, down here on Main Street, we've got some pretty sharp stockpickers, too. (And we're not always impressed with how Wall Street does its job.)

Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We 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 ...
Fabless chip designer NVIDIA (Nasdaq: NVDA  ) , which makes chips for crunching graphics data and powering mobile gadgets, has been under a veritable hailstorm of analyst action lately.

Last week, JMP Securities moved the stock into the "buy" column, citing the prominent role of NVIDIA Tegra 2 chips in the coming wave of Android-based tablets and smartphones. Yesterday, UBS weighed in with a reiterated "hold" rating but a lower 1-year target price. And today, Raymond James held onto its "strong buy" recommendation due to that Android rush as well as a newfound conviction that Intel (Nasdaq: INTC  ) and its Sandy Bridge chips won't hurt NVIDIA's share of the graphics market.

That's a lot of information to digest at once, but it helps that two of the three opinions agree to a great extent. Tegra 2 is the reference chip for the tablet-friendly Honeycomb version of Android, much like the QUALCOMM (Nasdaq: QCOM  ) Snapdragon platform was the de facto standard for Android devices in 2010. As such, anything short of total Apple (Nasdaq: AAPL  ) domination of the smartphone and tablet markets in 2011 will give NVIDIA plenty of high-margin Tegra sales to cheer about. A Samsung tablet with Tegra inside is worth just as much to NVIDIA as a successful Motorola Mobility slate or an LG Electronics smartphone built around the same chipset.

Paint a pretty picture, will you?
So far, so good: the optimistic analysts have a leg to stand on. We still have a less rosy-cheeked observer in the mix, though even that $20 target price represents a solid 12% upside to NVIDIA's current share price. With all of this enthusiasm in mind, let's have a look at the analysts' track records in the chip sector.

JMP is perhaps better known for its expertise in health care and biotechnology stocks, where the firm has impressive accuracy rates north of 65%. In semiconductors, JMP is hit-and-miss with a uniformly positive rating on every semiconductor stock it covers. RayJay's sector exposure isn't large enough to jump to any conclusions, though the company is currently correct on its favorable rating of Texas Instruments (NYSE: TXN  ) .

But the superstar of the bunch here is UBS, which covers 58 semiconductor stocks and is getting an impressive 67% of those picks right, some of them spectacularly so:

Company

UBS Rating

CAPS Rating (out of 5)

UBS's Picks Beating S&P by

Fairchild Semiconductor International (NYSE: FCS  )

Outperform

*****

309%

Teradyne (NYSE: TER  )

Outperform

****

296%

Semiconductor Manufacturing International

Underperform

****

48%

With a track record like that, it's hard to argue against UBS in this sector. Speaking further in the firm's favor is the fact that it isn't unconditionally married to NVIDIA -- UBS has actively recommended a "sell" in recent history and still isn't telling anyone to buy the stock.

Foolish final thought
UBS sees Sandy Bridge as a legitimate threat to NVIDIA sales and also predicts weakness in the graphics division in general. Tech analyst Uche Orji is a well-known, familiar name in the chip industry, and his thoughts largely echo my own position on NVIDIA these days.

The company is undergoing a massive transformation wherein graphics chips become a lesser piece of the sales pie and mobile processors in the Tegra family become more important. In a year or two, NVIDIA the graphics giant could be a fading memory. That's a tricky change to navigate, and a modest uptick is about all I'd expect out of the stock over the next year or so.

So don't load up on NVIDIA today. UBS says "hold," and I agree.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can find him on CAPS under the handle TMFZahrim, where he's currently ranked No. 2,425 out of more than 170,000 members. Intel is a Motley Fool Inside Valuechoice. Apple and NVIDIA are Motley Fool Stock Advisorselections. The Fool has written puts on Apple. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a diagonal call position on Intel. The Fool owns shares of Apple, Qualcomm, and Texas Instruments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 05, 2011, at 6:17 PM, jwtrotter wrote:

    Excuse me, but Raymond James has more 'exposure' than you imply. And Mosesmann actually has been right at a rate that matches the UBS analyst or better. I think you need to do a little more research because you aren't complete in your argument.

    And by the way, your comments about a modest uptick within a year? Please . . if Nvidia matches it's forecast or better this coming earnings, it's not a modest uptick. There has been way too much bias in the press releases over the last month essentially protecting both Apple and Intel.

  • Report this Comment On April 05, 2011, at 8:55 PM, jwtrotter wrote:

    Sorry, one more comment, I think saying that Nvidia is transitioning to the mobile market is misleading. It's more of a challenge for writers like yourselves that struggle to believe they are doing as well as they have planned. They are expanding (not transitioning) their scope using the very expertise they developed with the graphics cards for desktops, which I use in my profession btw.

  • Report this Comment On April 05, 2011, at 9:16 PM, IIcx wrote:

    Consider waiting a few days before going long.

    You're likely to find the stocks a lot cheaper.

  • Report this Comment On April 05, 2011, at 10:56 PM, AirForceGuy wrote:

    Old technology!!!

    Sorry but you and JPM are way behind, Tegra is old news.

    The new boy in town is the the Qualcomm 1.5GHz dual-core Snapdragon Scorpion with the Adreno 220 GPU that beats Tegra hands down.

    http://blog.gsmarena.com/the-new-1-5ghz-dual-core-snapdragon...

    The market is moving away from Tegra GPU and adopting the Adreno GPU.

    I don't see any future for the Tegra even the SGX540 is better than Tegra!

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