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." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.

So 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'll begin with a couple of new ratings in the sunburned solar sector, as Trina Solar (NYSE: TSL  ) bags an upgrade from one analyst, which simultaneously throws in the towel at Suntech (NYSE: STP  ) . Then, on a happier note, we'll move on to examine a couple of more optimistic recommendations in tech, as both OCZ Technology (NYSE: OCZ  ) and RF Micro Devices (Nasdaq: RFMD  ) score new buy ratings. Let's dive right in.

Burnt by the sun
With shares down 75% and 74%, respectively, over the past year, you might think investors would take an equally dim view of the prospects at Trina Solar and Suntech. You'd be wrong, as demonstrated by divergent ratings moves this morning at Maxim Group.

Pointing to the devastated share price as evidence that "risk/reward" has become "more balanced" at Trina Solar, Maxim argues that Trina has better assets, and better chances of surviving the solar slowdown, than many of its peers. As such, the analyst is prepared to cut Trina some slack and removed its "sell" rating on the stock this morning.

Not so with Suntech. Blasting the company for its still-growing losses and debt, Maxim took a look at its old $1.50 target price on the sell-rated stock and decided it was ... too optimistic. Seeing "steep 1Q downside" in the stock, which is trying (and failing) to eke out a profit on 5% gross margins, Maxim cut its target price by two-thirds and now says the most investors can hope for is that Suntech will be worth $0.50 a year from now.

That's a pretty harsh judgment on a stock that currently costs nearly four times that price, but it may be justified. Consider: Suntech already owes its creditors roughly $2 billion in net debt, versus a market cap of less than $350 million. But rather than paying that debt down, the company's $45 million cash-burn rate suggests it may have to pile on even more debt as time goes on. Unless something changes here, and soon, Suntech may not even fetch the four bits Maxim is predicting. This stock really could go to zero.

OCZ spells "buy?"
And speaking of stocks that could go to zero: OCZ Technology. The name sort of rhymes, but that's about the kindest thing I can say about this one, which somehow wheedled an "outperform" rating out of Credit Suisse this morning.

No one's quite sure what it is that Credit Suisse sees in OCZ. (The rating has been published, but not even the ratings-watchers at StreetInsider.com know the details.) All we really know right now is that CS thinks OCZ, currently priced at $5 and change, is worth $8. But how likely is that proposed 60% profit to materialize?

I mean, OCZ just finished reporting earnings earlier this month. Revenue ran up 70% versus last year's fiscal Q4, yet even so, OCZ managed to lose more money this time around -- $0.11 per share. So I ask you, if the more OCZ sells, the more money it loses, what's the solution here? What takes the stock to $8? Answer: nothing. Unless OCZ finds a way to earn a profit from its business, the stock remains a dog, with fleas. I'm so certain of this, in fact, that I'm publicly doubling down on my previous underperform rating on OCZ and recommending again in my CAPS account that it be sold. (Want to watch? It's happening right now.)

So what does "RFMD" spell?
Given my aversion to cash-burning enterprises, you might expect I'd have similar words to say about investment banker Stephens' decision to recommend buying shares of RF Micro Devices this morning. And yes, on one hand, the stock does look like a pretty good candidate for sale. The company barely broke even over the past 12 months, netting all of just $900,000 profit from its $871 million in sales.

But here's the thing: While RF Micro has struggled to produce GAAP profits lately and is actually GAAP unprofitable over the past five years, it's nonetheless racked up an impressive amount of cash profit in its bank account. Cash-flow statements for the company show that RF Micro has succeeded in generating annual free cash flow of about $88 million, on average. And when you compare this cash haul with the company's enterprise value (currently under $850 million), the resulting EV/FCF ratio of less than 10 looks pretty attractive relative to RF Micro's projected long-term 13% growth rate.

Long story short, while I'm willing to go virtually "short" on OCZ, RF Micro can keep its place in my CAPS portfolio a while longer. No, it's not the very best semiconductor company out there. In fact, our analysts at the Fool think much more highly of another company with its crosshairs set directly on the trillion-dollar revolution in mobile devices. To find out which company it is, pick up our free report today.

Whose advice should you take -- Rich's, or that of "professional" analysts such as Maxim Group, Credit Suisse, and Stephens? Check out Rich's track record on Motley Fool CAPS, and compare it with theirs. Decide for yourself whom to believe.

Fool contributor Rich Smith owns no shares of, nor is he short, any company mentioned above. He does, however, have public recommendations available on more than 60 separate companies. Check them out on Motley Fool CAPS, where he goes by the handle TMFDitty -- and is currently ranked No. 315 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy.

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


Read/Post Comments (8) | Recommend This Article (1)

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 May 24, 2012, at 8:40 PM, deadheart2 wrote:

    Rich, that is why you qualified to work at the Motley Fool but not Credit Suisse. Don't bash the stock if you don't have a gut to short it. Excuses are meaning less. The fact you spend time write an article and bash stock but no gut to short the stock only tell me that you want the stock to go down so you can buy it cheap. There are a lot of upgrade downgrade on other companies and yet you find it better to write on OCZ then bash it.

  • Report this Comment On May 24, 2012, at 11:14 PM, fhdfhfhfgh wrote:

    >> "No one's quite sure what it is that Credit Suisse sees in OCZ. (The rating has been published, but not even the ratings-watchers at StreetInsider.com know the details.) All we really know right now is that CS thinks OCZ, currently priced at $5 and change, is worth $8..."

    Is this a joke?!? Credit Suisse wrote a 30+ page detailed report supporting their opinion. Credit Suisse research is available for free for TDAmeritrade customers and other sources. Tens of millions of people have access to this.

    Rich, the fact that you didn't even get a copy of the report before publishing this garbage is reprehensible and, frankly, retarded.

  • Report this Comment On May 25, 2012, at 12:11 AM, ddbikessamsara wrote:

    "No one's quite sure what it is that Credit Suisse sees in OCZ. (The rating has been published, but not even the ratings-watchers at StreetInsider.com know the details.) "

    I guess the pros at StreetInsider, like you, are too lazy to actually read the report before spewing your nonsense.

    Credit Suisse is calling for nearly $1 Billion in revenues for CY 13 - a breathtaking growth rate under any measurement. They are also calling for EPS in the $1 range for that time period. A normal PE in the 15 range gets you DOUBLE the price target of $8. Of course none of this matters by your logic since they were unable to generate a profit this quarter while they were firmly positioning themselves for the massive future growth.

    Not just Credit Suisse but Needham & Co, Craig-Hallum, Piper-Jaffray, and Stifel-Nicolaus have issued reports recommending OCZ with price targets up to $17.

    Fortunately we have the Motley Tool - who can summarize their "research" in 2 sentences - to protect us against all these ill-informed analysts who have done extensive DCF models and actually looked at the company and the SSD market to arrive at their conclusions.

    Thanks for yet another ill-informed, poorly presented, and worthless article. The Tool is solidifying it's hold on the Most Useless "Financial" website ever.

  • Report this Comment On May 25, 2012, at 12:16 AM, pmony5 wrote:

    How incredibly lame this novice hack job is on OCZ ? at the very least READ the report before posting this garbage. OCZ at 5X's forward earnings is a sell ? despite near 100% growth rate the last 3 years & projected 75% + for the next 3 ? That's called hyper growth & will be a leader in SSD's. I'm sure you are a buyer of sector peer FIO at 60X's forward earnings or STEC at NO P/E as slated to lose money & a big drop in revenue. Do us all a favor and stick to posting on Wahoo where your diatribe belongs.

  • Report this Comment On May 25, 2012, at 12:30 AM, bruceeisner wrote:

    It says that you are doubling down and shorting OCZ, its happening now.

    But it isn't happening.. The only thing you managed to do, is demonstrate that you get paid my market makers to do hack jobs on good companies. Not well done hack jobs but you use the right lingo so uniformed people might just take your bad advice.

  • Report this Comment On May 25, 2012, at 8:29 AM, Mathp wrote:

    I would take everything this guy says with a grain of salt...from his profile: ""You don't have any investing expertise." <-- Guilty as charged. "!

  • Report this Comment On May 26, 2012, at 2:29 AM, davidplops wrote:

    Hi guys,

    Does anyone of you have access to the CS report and could send it to me? (david.plops[the @]gmail.com)

    I would really appreciate!

  • Report this Comment On May 28, 2012, at 3:42 PM, pmony5 wrote:

    Notice Author has NO response as none is needed to show what a buffoon he really is lmao. OCZ has flew past all competitors & built a biz with no 10+ % customers that can take them down unlike FIO with over 80% of their biz coming from 4 customers = big crash coming imo especially at 60X's earnings while OCZ trades at 5X's forward earnings.

Add your comment.

DocumentId: 1894868, ~/Articles/ArticleHandler.aspx, 4/19/2014 1:43:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement