Tuesday's Top Upgrades (and Downgrades)

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense and which ones investors should act on.

Today, analysts take some confusing action on Research In Motion (Nasdaq: RIMM  ) and lose faith in InterDigital (Nasdaq: IDCC  ) , but Nanosphere (Nasdaq: NSPH  ) just got a new fan.

Research In Motion: Where are you going?
No fewer than two Wall Street firms lowered their expectations for the BlackBerry maker this morning, but one swam upstream with an upgrade to "buy."

RIM's troubles have been documented in excruciating detail. The company's already small market share is melting away, the supposed savior platform has been delayed beyond the next holiday season, and there's just no stopping the Apple (Nasdaq: AAPL  ) and Android juggernauts. So it's actually a breath of fresh air to see Hudson Square analyst Daniel Ernst taking a stand for this troubled stock.

Ernst believes that RIM has a place in the future of mobile computing, and the current enterprise value of just $1.6 billion makes it a very tempting takeover target.

But not even this contrarian can call RIM a buy and walk away with a straight face. This is a pure takeover play, and there's a risk that RIM might decide to stay independent to the bitter end -- or just fail to find a buyer. Thus, it's "not without trepidation" that Ernst makes this call.

I'm inclined to write this call off as a misguided attempt to stand out from the bearish crowd. I'll buy a Stetson hat just to eat it with barbecue sauce if Apple buys RIM, and a fedora if Hewlett-Packard (NYSE: HPQ  ) walks up to RIM's Canadian headquarters, waving a checkbook. And those are the two most likely buyers I can think of since Apple could use a quick security boost and HP has a history of picking up mobile players already circling the drain.

Feel free to run with the bears and ignore the lonely bull in this case.

InterDigital: Losing its luster
Barclays even ties RIM's weakness into another downgrade today. Patent wrangler InterDigital used to be a solid "buy" in the British financier's books, but has been reduced to an average "hold" rating.

The firm slashed its earnings outlook for InterDigital by 12% because its revenue mix is shifting in the wrong direction. Mobile patent licensees under fixed payment terms such as Samsung and Apple are stealing market share from companies paying per unit sold, including HTC and RIM.

I would add that the heyday of rising patent values seems to be behind us. The patent bubble is leaking air these days. Some companies depend on patent sales to save their corporate lives and still can't find buyers. With or without shifting mobile sands under its feet, I find it hard to get enthusiastic about InterDigital's business model right now. I don't know if Barclays has seen the writing on the wall yet, but this call is directionally right.

Nanosphere: Big things in tiny packages
Finally, Jefferies analyst Jon Wood upgraded Nanosphere to a buy with a $5 price target -- a potential double from Monday night's $2.52 closing price. And the stock has already more than doubled in 2012. Is this a pure momentum play or does Jefferies have meat on the bones here?

Wood pins his hopes on Nanosphere's recently FDA-approved blood infection test "to drive a significant acceleration in new system placements & revenue." The test promises to find infectious disease markers faster than other solutions, using a smaller blood sample. The so-called BC-GP test even highlights bacteria that have developed resistance to antibiotics. Nanosphere posits that hospitals can save as much as $21,000 per patient in lower mortality rates and shorter hospital stays by using this product.

I'm no medical doctor, but the FDA approval shows that Nanosphere can back up these radical claims with real results. Next-generation medical research is a proven and very investable business strategy, and Fool co-founder David Gardner can hardly contain his excitement about another stock in this sector right now. Grab his special report on the Next Rule-Breaking Multibagger to see if David's thesis fits Nanosphere as well.

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 Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of InterDigital and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.
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  • Report this Comment On July 03, 2012, at 5:28 PM, EnigmaDude wrote:

    Thanks for the insights on Nanosphere in particular. I have been watching this stock with interest as it has nearly doubled this year and was wondering what the catalyst was. I will have to do more research but your comments are helpful to know where to focus my efforts.

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