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, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.
Given this, 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.
And speaking of the best...
There's a saying in investing circles: "Don't measure something with a micrometer and mark it with chalk if you plan to hit it with an ax." It's a pretty well-known bit of wisdom, but apparently not one that Deutsche Bank has ever heard of.
On Friday, you see, the German analyst upped its rating on Chinese Web portal SINA (Nasdaq: SINA ) . Previously having a hold on the stock, Deutsche had SINA's valuation worked out to the dime: $92.40. But based on a second look at the company's Weibo microblogging website, Deutsche now believes the stock is worth an extra $2.40 a share ($94.80 in all) and deserves a buy rating to boot.
Weibos won't wobble
Before last week, Deutsche had viewed SINA primarily as a play on "its growing presence in social gaming." In this respect, SINA was classed with companies such as Tencent and Renren (Nasdaq: RENN ) . But Deutsche now also believes it's seeing "Weibo monetization ... approaching" at SINA. "We expect Weibo to become a profitable and scalable commercial platform as a core hub of activity in China" and part of "a massively diversified eco-system."
Let's go to the tape
If anyone has a feel for how "ecosystems" are built online -- and how they can create profits for investors -- it's probably Deutsche Bank. We've been tracking this banker's performance for more than five years now and found it to be a pretty reliable stock picker. Ranked in the top 20% of investors we track, Deutsche has achieved roughly 65% accuracy when recommending Internet software and services stocks. Across the length and breadth of this industry, it's has racked up nearly 1,000 percentage points worth of market outperformance on its winners, including such stars as:
|
Company
|
Deutsche Rating
|
CAPS Rating
(out of 5)
|
Deutsche's Picks Beating S&P by
|
| NetEase.com |
Outperform |
**** |
26 points |
| Sohu.com |
Underperform |
*** |
35 points |
| Baidu |
Outperform |
** |
245 points (picked twice) |
Source: Motley Fool CAPS.
Will SINA become the next entry in Deutsche's win column? I wish I could give you an ironclad guarantee that it will...but I can't.
Make that, "I still can't." Two months ago, I took a look at the similarly bullish stance on SINA that British banker Barclays had taken, but came away unimpressed. Priced at 47.2 times last year's free cash flow (this year's is anyone's guess, because SINA's not very diligent about filing cash-flow statements consistently), 46.9 times next year's projected earnings, or infinity times this year's still-absent profits -- any way you look at it, SINA shares seem richly valued.
Foolish final takeaway
Sure, Deutsche could be right about the stock. SINA could be about to turn things around -- to start "monetizing" those Weibo visits and generating some serious cash for its shareholders. But personally, I've always been more comfortable investing in companies that are doing well and have proven the ability to do well than in those that might do well...eventually.
Deutsche says SINA is one of the latter, but if you ask me, you're better off investing in strong free cash flow producers, selling for reasonable prices -- companies like NetEase, Sohu.com, and Shanda Interactive (Nasdaq: SNDA ) , to name a few. These are better bargains and safer places to put your money today.
Looking for even more diversified options for betting on international growth? We've got you covered there, too. Read the Fool's new -- and free! -- report on "3 ETFs Set to Soar During the Recovery."
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