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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.
This morning, analysts are talking up shares of Apple (Nasdaq: AAPL ) and PPL Corp (NYSE: PPL ) , but talking down prospects for Monster Beverage (Nasdaq: MNST ) . Let's find out why, beginning with...
Let's start with the big news. For no reason anyone seems to fathom, Apple shares have encountered some turbulence of late. While floating back north of $600 in recent weeks, in anticipation of iPhone 5, the stock has yet to regain the $636 peak it hit back in April.
The operative word here being "yet." Because according to the smart stockpickers at Stifel Nicolaus, it's only a matter of time before Apple regains its former peak, then vaults right over it. The analyst points to esoteric metrics such as "off-balance sheet inventory" and "manufacturing investments" as indicative of a surge in sales at Apple coming shortly. Within a year, Stifel says, Apple shares will be topping $825 with nary a look back.
And call me crazy, but I think Stifel's right. At 14.6 times earnings, Apple shares certainly look cheap enough. Granted, Dell (Nasdaq: DELL ) and Hewlett-Packard (NYSE: HPQ ) cost less than half that P/E, but they're both "cheap for a reason." Both are mired in mid-single-digit growth rates, while Apple sprints ahead at 22% average long-term earnings growth estimates. At a PEG ratio of just 0.66, Apple is, and deserves to be, the apple of investors' eyes.
Bringing sexy back
In contrast to always attractive Apple, Wall Street's second big upgrade of the day is anything but sexy. Indeed, in any stock beauty contest, you'd have to say electric utility stock PPL looks downright plain. Nonetheless, PPL is turning heads on Wall Street this morning after beating earnings by a full dime, and reaffirming its ability to earn about $2.30 per share this year, or $2.48 per share once one-time charges and benefits are factored into the mix.
UBS responded to the news by upgrading the shares to "buy" this morning, and once again, Wall Street is calling it right. Priced at just 10 times earnings, PPL justifies its valuation with a modest goal of 4.6% long-term profits growth, and a strong, steady stream of dividend checks. The valuation's fair, and in a topsy-turvy market like this one, PPL's 5% divvy might even be worth a premium.
Fear the Monster
One stock definitely not worth paying a premium for, though, is Monster Beverage. I warned investors to stay away from this one back in June (and in May before that). Hopefully, investors who heeded the warning were able to dodge the 8% post-earnings-miss sell-off that's taking place at Monster today.
Anyone who didn't listen then, though, might want to listen up now. This morning, Stifel Nicolaus cut $12 off of its target price for Monster stock. The analyst still urges investors to buy Monster, however, and with Monster 8% cheaper today than it was pre-earnings, this may sound like good advice.
Monster shares may be cheap-er now, you see, but at 33 times trailing earnings, they're hardly cheap. Long-term earnings growth at Monster is still estimated at just 15%. And while that's a respectable number, it's far too slow to support the stock's 33 times multiple. Long story short, I'd still rather be short this stock than long.
Foolish final thought
That's it for the day's upgrades and downgrades, folks. Now if you want to learn our take on the company behind today's upgrade, follow this link to read our new premium report on Apple. Inside, you'll learn everything every Apple investor has to know. We also give you a full year of updates to go with it, so make sure you claim your copy today.