Wednesday'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, we'll be looking at a new buy rating for Archer Daniels Midland (NYSE: ADM  ) , an increase in price target for Comcast (Nasdaq: CMCSA  ) , and a downgrade for Barnes & Noble (NYSE: BKS  ) . Let's dive right in.

Here's your coupon to the supermarket-to-the-world
Agricultural foodstuffs producer Archer Daniels Midland used to bill itself as the "supermarket to the world." Catchy title, and today, one analyst on Wall Street is handing out coupons, urging investors to go shopping at the "supermarket."

This morning, ace stock picker Standpoint Research pointed to ADM's valuation, currently at a six-year low, and declared it "a bottom." Arguing that investors have overreacted to "the drought and bad news from Q2," the analyst upgraded ADM to "buy" and assigned the stock a $33 target price. And Standpoint might have a point.

After all, at 14 times earnings, it's not like ADM is particularly pricey. Long-term earnings growth projections average an unassuming 10%, and ADM pays a generous 2.6% dividend yield to boot, helping to close the valuation gap. Plus, ADM is a copious cash grower, generating more than $1.4 billion in positive free cash flow over the past year -- 18% more than its income statement would suggest.

The main downside here is debt: ADM has a lot of it. Valued as an "enterprise," ADM sells for an 18 times multiple to free cash flow. Absent this, most value investors would probably agree that ADM is a "buy." With it, whether the stock has bottomed remains open to debate. Tread cautiously.

Hit "play" on Comcast?
In other news of the optimistic, Wunderlich analysts this morning upped their price target on buy-rated Comcast. Priced at $34 and change today, Wunderlich thinks Comcast could hit $40 a share within a year, and this prediction looks to have better chances of success.

Sure, on the one hand Comcast looks more expensive than ADM, but appearances can be deceiving. While priced at a lofty 20 P/E, Comcast is a prodigious grower of cash in its own right, generating some $9.8 billion in positive free cash flow over the past 12 months. Even with a debt load that dwarfs ADM's in size, this leaves the stock trading for an enterprise-value-to-free-cash-flow ratio of less than 13.

That's a bargain relative to Comcast's 14% projected growth rate, a bargain made all the deeper by the fact that Comcast pays its shareholders a tidy 1.9% dividend yield.

Result: Comcast looks like a keeper.

Barnes & Noble burns
Continuing our theme of companies having a love affair with debt, Barnes & Noble runs a book business that carries $420 million more debt than cash. It's got no profits to speak of and has burned through more than $187 million in cash over the past 12 months.

There's not a lot to like in these numbers, and, accordingly, the analysts at Stifel Nicolaus decided this morning to downgrade the stock -- albeit only to hold. Investors might want to go even further, though, and sell the stock before things get even worse.

You see, even as it struggles with a heavy debt load, and no positive free cash flow coming in to reduce it, Barnes & Noble has been forced to cut prices on its marquee e-book, the Nook, as it battles for market share with the Apples, Samsungs, and Amazon.coms of the e-world. It's a situation that will get worse, not better, as Google's new tablet enters the market, and Barnes & Noble lacks the balance sheet strength to keep up the struggle much longer.

Long story short: You don't want to be long this stock.

Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Google, Amazon.com, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Amazon.com, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended writing puts on Barnes & Noble.


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