Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Just In: Upgrades and Downgrades

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

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 stock pickers, 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.

Today, we're looking at a stock that gets plenty of love -- right along with a downgrade. What gives?

Cirrus Logic: Music to your ears?
The stock under the microscope is audio chip designer Cirrus Logic (Nasdaq: CRUS  ) . Analyst firm Oppenheimer just downgraded the stock from a "buy" to a "hold," but pours buckets of love over Cirrus all the same.

You simply don't see language like this in most downgrade notes:

Cirrus remains one of the best pure plays on the growth and success of Apple (Nasdaq: AAPL  ) . We continue to expect Cirrus to retain its sole-source position with Apple through at least 2012 while enjoying material content increase in upcoming devices. We believe [the June-ended quarter] is tracking in-line and that [the September-ended quarter] could grow 30%-plus [quarter-over-quarter].

If the company's near-term future looks so bright, why the glum rating? There's an explanation for that. Oppenheimer notes that shares have soared 88% year-to-date, leaving little room for further "upside surprises" at this point. "We believe risk/reward is balanced and are moving to the sidelines," the firm says.

Before digging into the value of these statements, let's have a look at Oppenheimer's track record. In our CAPS system, the firm carries a middling score of 66 out of 100. It gets about 44% of its ratings calls right -- but only 26% in the semiconductor segment.

In that sector, Oppenheimer has scored huge with a long-term call on Skyworks Solutions, but lost it all and then some on a bucketful of mistaken calls. Here's a sample of Oppenheimer's extremes:


Oppenheimer Rating

CAPS Rating
(out of 5)

Oppenheimer Beating S&P by

Skyworks Outperform **** 293%
FormFactor (Nasdaq: FORM  ) Outperform ***** (120%)
ReneSola Outperform ** (128%)

In all fairness, FormFactor has been a fairly steady five-star CAPS stock (out of five) even as share prices fell 40% over the last two years. This stock has hurt its fair share of CAPS portfolios (my own included), and still holds a terrific 98% approval from our All-Star players. And Oppenheimer may have lost big on ReneSola, but has shown some tremendous gains elsewhere in the solar power field. The firm snagged a 148-point gain on JinkoSolar during four hectic months in 2012 -- and correctly closed out that position, which has lost 88% of its value since then.

So maybe Oppenheimer's terrible score is just a temporary slump after all. Bad things happen to good stock pickers every day, after all.

What about this Cirrus call, then?
Oppenheimer's analysis of Cirrus makes sense on the face of it. I agree with everything the firm said about Cirrus' plum position in Apple's supplier universe, and the management team already told us to expect a sharp revenue jump in the September-ended quarter.

But we disagree on the fundamental question of valuation. That 88% gain seriously doesn't put a cap on further gains. After all, Cirrus shares trade for just 22 times trailing and 13 times forward earnings even today. As long as the Apple relationship doesn't turn sour overnight, this stock is still primed for tremendous gains. Furthermore, all of this value comes from the audio chip portfolio. You basically get Cirrus' power controllers for free, including the LED lighting controllers that are set to make meaningful contributions in 2013 and beyond.

The Foolish takeaway
All told, Oppenheimer's "hold" might be right in the short term -- for active traders. Long-term investors like most of us Fools, however, should still feel comfortable buying here.

As always, true Fools need to supplement any investment thesis with their own homework. Cirrus gets a thumbs-up rating from 96% of the CAPS members who have weighed in, and has scored 180 points for my own CAPS portfolio. Did Oppenheimer just change your opinion on this stock, one way or the other? Jump over to CAPS and make your opinion known right now.

While Cirrus is a great way for investors to invest in the success of Apple, there's an even better way. Apple itself! In our brand-new premium Apple research service, our top tech analyst outlines all of the biggest opportunities and threats, and why this stock may have even more room to run. Click here to claim your copy today!

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of FormFactor and Cirrus Logic. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and FormFactor. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in FormFactor. 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. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (4)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1930919, ~/Articles/ArticleHandler.aspx, 10/27/2016 8:36:23 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...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 4:00 PM
CRUS $51.79 Down -0.86 -1.63%
Cirrus Logic CAPS Rating: ****
AAPL $114.48 Down -1.11 -0.96%
Apple CAPS Rating: ****
FORM $10.54 Up +0.29 +2.83%
FormFactor CAPS Rating: ***