This Just In: More 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, 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.

Today, we're going to take a look at three high-profile ratings moves on Wall Street: A sell rating on the Bank of Ireland (NYSE: IRE  ) , balanced by an upgrade for Western Digital (NYSE: WDC  ) and a price target hike at Westport Innovations (Nasdaq: WPRT  ) .

Irish eyes are crying
Let's get the bad news out of the way first. By now, you've probably heard about Greece's historic debt default/economy-saving deal with lenders. So, crisis averted, right? Europe is saved, and we can all stop worrying about the economy over there?

Not so fast. Turns out there's still a lot of risk in many places -- and in at least one of the banks that lends to them. This morning, Citigroup decided to rate one such bank a "sell": Bank of Ireland. Now, details on this rating are still lacking. While most major news outlets agree that the rating is "out there," no one seems to know why Citi chose now as the best time to advise selling -- but I think we can guess.

Lacking a dividend and selling for a price-to-sales ratio more than twice as big as our own Bank of America (NYSE: BAC  ) , Bank of Ireland is no bargain. Indeed, odds are that if subjected to a stress test like the one that B of A just passed, B of I wouldn't be so lucky. Yet post-Greek bailout, the stock's up more than 50% from its December lows. If you've made a profit from the move, I think Citi's making the right call here. Cash it in. Sell the stock.

Western Digital, ho!
In happier news, hard-disk drive-maker Western Digital scored an upgrade from Needham & Co. Western D, as you may be aware, is the major HDD rival to Seagate (NYSE: STX  ) , which won multiple buy ratings of its own last month in the wake of a monstrously profitable fiscal Q2 earnings report. After re-examining the effect of its purchase of Hitachi's HDD business, Needham now thinks Western-D's shares are worth 32% more than previously believed -- $66 apiece. And as the stock only costs $40 and change today, that's enough to move the stock from a "buy" to a "strong buy" in Needham's opinion.

I agree. Priced at 14 times trailing earnings and less than 11 times free cash flow, Western Digital shares are priced at just a fraction of what they're worth, if the company manages to hit the 20% growth rate Wall Street has set for it. Factor in the $3.7 billion in net cash on the balance sheet, and the stock's even cheaper than it looks. Fact is, I'm so certain Western Digital will outperform the market from this point onward that I'm going to put my reputation on the line and publicly rate this stock an "outperform" on Motley Fool CAPS. Follow along and see how the pick works out.

Hmm. Move it a little more to the West
And speaking of things that "worked out," last night, FastMoney was giving Westport Innovations some CNBC love. One guest on the program mentioned the natural gas engine-design shop as a natural play on the coming natural gas revolution, and apparently Wall Street was watching. This morning, analysts at JMP Securities upped their price target on the stock by 12.5% to a new objective of $54 per share.

Westport has, as a result, pretty much sidestepped today's market downturn, actually gaining a few cents in share price. But does this mean you should buy the stock?

Not necessarily. Listen, Fools: Westport has a future, and probably a long one. The company just raised $274 million in new capital last month, and even at today's $27 million annual cash-burn rate, that's going to be enough to keep Westport going for many years to come. It gives the company a chance to prove itself a worthy investment.

For the time being, however, Westport is still burning cash. It's not a profitable business. It's not a safe investment -- it's a speculative one. Big risk, big potential reward.

You don't have to bet the ranch to profit from a bullish stock investment, though. If Westport sounds too risky for you, read this (free) Fool report instead, and we'll tell you all about "The Only Energy Stock You'll Ever Need."

Whose advice should you take -- mine, or that of "professional" analysts like Citi, Needham, and JMP? Check out my track record on Motley Fool CAPS and compare it to theirs. Decide for yourself whom to believe.

Fool contributor Rich Smith does not own shares of, nor is he short, any company mentioned above. He does, however, have public recommendations available on more than 50 separate companies. Check them out on Motley Fool CAPS, where he goes by the handle "TMFDitty" -- and is currently ranked No. 373 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (7) | Recommend This Article (16)

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 March 22, 2012, at 4:16 PM, Teacherman1 wrote:

    Hopefully this will get IRE down to a level where I can buy it again for a long term hold. I sold it during the run up with the intention of buying back in when it came back down, but until now it has refused to come back down enough.

    In addition to the Citi downgrade, I believe I saw something in the news about the Irish Govt. having talks with the ECB about funding for their banks.

    I believe Ireland will have to deal with new funding which I think runs out in 2013.

    It will take longer for IRE to recover than BAC, but as long as Mr. Ross is involved with them, I am bullish for the long term.

    When they do "dip" back down to my "buy" level, I won't buy a lot, but will look to add over time.

    JMO and worth exactly what I am charging for it.

  • Report this Comment On March 22, 2012, at 5:09 PM, ronbeasley wrote:

    Two of the most astute investors in the world, billionaires Prem Watsa and Wilbur Ross, have huge stakes in Bank of Ireland and view it very favorably as a long term investment. Hint - Bank of Ireland has taken its hits, and, after huge writedowns, is still selling at less than 40% of book value. That, smart guy, is much lower than Bank of America, which has not taken writedowns to the same degree. And price-to-book is a far more meaningful metric for a bank than price to sales, as revenue mixes differ substantially between banks. I suggest you learn something about banks before writing this stuff. Some people actually pay attention to it..

    But undeterred by intelligence, some guy sitting behind a desk at Citi says sell it and the mindless morons line up and do just that. So the Motley Fool now joins the parade of sheep. Use this insane selling as an opportunity to buy Bank of Ireland. I own some, may buy more on this.

  • Report this Comment On March 22, 2012, at 6:56 PM, ajjr100 wrote:

    Here we go again on Westport - one Motley Fool says "buy" another says "hold" and another says "sell". What's a fool to do? Talk about Family Feud!

  • Report this Comment On March 22, 2012, at 8:39 PM, TMFDitty wrote:

    aijr100: I recommend pulling your hair out in frustration. That's what I do.

    I want to love Westport. Really, I do. But I've been burned so many times investing in FCF-less companies, that I can't in good conscience recommend one today -- not unless it's clearly just around the corner from turning FCF-positive. WPRT is not.

    TMFDitty

  • Report this Comment On March 22, 2012, at 11:58 PM, dpgennrich wrote:

    I just paid good money for MF subscription. Just two weeks ago i read and agreed to one of the two found's "The #1 Stock for the Fuel Revolution"

    Very convincing document. Now I read this.

    I can cancel within 30 days of two weeks ago.

    MF. A response that explains why I shouldn't would be beneficial to you. And me.

  • Report this Comment On March 24, 2012, at 12:12 AM, ronbeasley wrote:

    MR writers are trying to sell subscriptions, nothing more. Most of them are far from competent investors.

  • Report this Comment On March 24, 2012, at 10:00 AM, JetBoatBob1 wrote:

    Jeremy Bowman wrote on March 9 2012 what a great company Westport is His title was Wesport Kicks it up aNotch, NowI read Rich Smiths article that says it not a good investment, .......And again I have read another article by you guys on Sink you retirement by selling these stocks In which Westport and Mako are both mentioned.......Wish you guy would get togeather and get your story stright........

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