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." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
Tata Motors: Coasting when it should be accelerating
Yesterday was a good day to be invested in stocks, as the Dow Jones Industrial Average (INDEX: ^DJI) surged 1.27%. The really curious thing, though, is that it wasn't an even better day to be invested in the stock of Tata Motors (NYSE: TTM ) .
You see, Tata received a new buy recommendation from Jefferies & Co. on Wednesday. The investment banker commended India's premier car company for "drastically" improving the JLR -- Jaguar and Land Rover -- business it acquired from Ford (NYSE: F ) in 2008. Jefferies also said it was "positive" on Tata's commercial vehicles business, and praised the firm's "balance sheet health and business mix." But do you want to guess how much of a bump Tata's stock price received from these kind words?
1.27%. Precisely as much as the average. And not a penny more.
Let's go to the tape
Why was it that Tata got no respect from investors yesterday? Perhaps the problem wasn't with Tata at all, but with the analyst that recommended it.
Jefferies, you see, while a fine analyst in many respects, doesn't really have much of a track record when it comes to investing in car companies. Over the five years we've been tracking this analyst's performance, it's made precisely zero public pronouncements on Ford, General Motors (NYSE: GM ) , Honda (NYSE: HMC ) -- any of the major car companies. Its only two recommendations of auto parts companies -- Westport Innovations (Nasdaq: WPRT ) and Wonder Auto -- split right down the middle. Jefferies outperformed the market handily on its recommendation to buy Westport, while its Wonder bet crumbled like a stale loaf.
So really, when you consider that Jefferies has no reputation to stand on in this industry, it's no real surprise that investors looked at its advice to buy Tata Motors and shrugged.
Does Tata get your motor running?
As I said, this is hardly Tata's fault. To the contrary, Tata today looks attractive enough that investors might consider buying the stock regardless of who does or does not recommend it.
With a $9.1 billion market cap, Tata sells for just 4.7 times earnings, which is precisely the same valuation General Motors commands (despite Tata being located in a higher-growth country), and cheaper than a share of Ford, Honda, or Toyota (NYSE: TM ) will cost you. Meanwhile, Tata's dividend yield sits at 2.9% -- likewise superior to just about any other automaker you could name. Free cash flow, while not yet at the levels claimed on Tata's income statement, is nonetheless strong and improving.
Foolish final thought
Granted, growth estimates for Tata going forward are as hard to track down as they are unreliable once found. (I've seen Wall Street guesses ranging from as high as 35% per year for the next five years, to as low as 1%.) But even at the midpoint of these two apparently wild guesses, 4.7 times earnings seems a bargain price. Indeed, Jefferies characterizes Tata's stock as "priced for recession."
In anything short of this worst-case scenario, though, Tata could run away from the market.
Will Tata Motors win the race? Add it to your watchlist and find out.
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