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." While the pinstripe-and-wingtip crowd is entitled to its opinions, 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, as markets plunge, Wall Street is looking past the gloom and talking up prospects at a whole raft of stocks -- Las Vegas Sands (NYSE: LVS  ) , Cirrus Logic (Nasdaq: CRUS  ) , and Mosaic (NYSE: MOS  ) , to name just a few.

Are you feeling lucky?
Despite being down for the year, shareholders at Las Vegas Sands are enjoying a rare winning streak today, having just been dealt a winning hand by the analysts at Imperial Capital. According to the analyst, Sands shares that as recently as yesterday could have been bought for $42 will fetch $62 within a year. That's close to a 50% profit, and would be wonderful news if it proves out -- but will it?

I have to say: The odds don't look good. At 25 times earnings, Sands actually seems to be selling for a premium to the 20% long-term growth rate the Wall Street assigns the stock. Free cash flow at the company, while much stronger than in years past, still lags reported net income, which makes it hard to endorse the stock based on its cash flows.

Perhaps most instructive -- Sands shares sell for a premium to its competitors, offering a P/E ratio eight points pricier than the average stock in the casino industry, and a P/S ratio more than three times as high as the average. Overpriced today, I think the chances that investors will overpay by 50% more a year from now look vanishingly slim.    

Well? Do you?
Bad as the odds look at Las Vegas Sands, investors who follow the advice of another analyst -- Feltl & Co. this time -- look even more likely to get burned. Feltl this morning initiated coverage of two semiconductor stocks, Cirrus and EZchip -- both of which it thinks you should buy. But why?

At 31 times earnings today, up nearly three times in value over the past year, Cirrus carries an exorbitant valuation that even its 20% growth rate will struggle to support. (Free cash flow at the company isn't anything to write home about, either -- less than a third of reported earnings.)

Feltl's even more bullish on EZchip ... and even more wrong with this one. While in contrast to Cirrus, EZchip boasts more free cash flow than it gets to characterize as "net income" under GAAP, the stock's pretty expensive no matter how you look at it. Valued on free cash, EZ costs a heady 44 times multiples. Valued on earnings, it's a whopping 73 times earnings. Neither one of these numbers looks particularly attractive in light of consensus expectations for 12% long-term growth. Accordingly, both of Feltl's recs fail the logic test.

And speaking of logic ...
Another pair of picks out of Wall Street -- from Stifel Nicolaus, to be precise -- appear to suffer from a logical mix-up. Resuming coverage of the fertilizer industry this morning, Stifel tagged Mosaic a "buy," but called CF Industries only a "hold." It's about a quarter-right about that. One of these companies is worth buying, but it's not the one Stifel says it is, and the one Stifel's most lackadaisical about is the stock you should probably own.

Let's do Mosaic first: With a P/E ratio of 13, the stock's buy-thesis starts off strong -- but is quickly brought up short. The one-year Great Drought of 2012 notwithstanding, long-term growth estimates for Mosaic still look slim at just 8%. Plus, the company generates only about 60% as much free cash flow as it claims to be "earning" in GAAP profits. So arguably, the stock's even more expensive than it looks, and far from cheap enough to consider buying.

In contrast, CF continues to look like a bargain. Its earnings valuation on earnings of 8 is even cheaper when viewed from the perspective of CF's more copious free cash flow production. Plus, CF's growth rate in excess of 10% leaves Mosaic in the dust. Alone in the fertilizer sector, CF reigns supreme as the only value stock worthy of real consideration as a place to put your investing dollars.

Whose advice should you take -- Rich's, or that of "professional" analysts like Imperial, Feltl, and Stifel? 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 stock named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 283 out of more than 180,000 members. The Motley Fool owns shares of Cirrus Logic and CF Industries Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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  • Report this Comment On August 22, 2012, at 10:42 PM, cp757 wrote:

    Rich Smith what a coincidence we poke plenty of fun at the Motley Fool analysts and their endless negative stories, While your crowd is entitled to its opinions, we have some pretty sharp stock pickers on Main Street that would differ with you.

    Las Vegas Sands was at 62.09 a share on April 12th 2012. They will be at that number again by the next conference call because they are opening the world's largest Sheraton with 3,896 rooms, on September 20th 2012. This will also be the largest hotel in Macao.

    China is still the world's second-largest economy and they are "flying" high compared to advanced economies like the United States and Europe and will do very well over the long term, said Mark Mobius, Executive Chairman at Templeton Emerging Markets Group.

    Exports, while slowing, are "not disappearing," Mobius said in an interview with CNBC on Tuesday. "They are still very, very big and I am quite optimistic China will continue to power ahead," he added.

    Mobius says a very pessimistic view would put China's GDP growth at 5 percent for the current year, which is still "five times more than the U.S."

    "They are not landing, they are continuing to fly and chances are growth would be better than that. It'd be more like 7 percent," he said.

    Faltering demand from China's two biggest customers - the European Union and U.S. - caused Chinese exports to post just one percent growth in July from a year earlier, the poorest showing since January, when exports fell. A Reuters poll had expected exports to grow 8.6 percent in July.

    The 7.6 percent expansion of the economy posted in the second quarter was also the weakest in three years, prompting some economists to say that the country is already in a "hard landing."

    These worries have hurt Chinese stocks, and the Shanghai stock market (Shanghai Stock Exchange: .SSEC) is the worst-performing bourse in Asia this year, having lost nearly 3.9 percent. Measures to bolster the economy such as slashing reserve requirement ratios for banks and cutting interest rates have not had an impact on the stock market. In the meantime, investors are still waiting for these measures to take effect and the economy to rebound.

    Despite the economic challenges facing China, Mobius thinks that the picture is still positive and he is continuing to buy Chinese stocks, regardless of daily shifts in sentiment.

    "We continue to buy Chinese stocks, particularly consumer oriented stocks," Mobius said. "Sentiment changes from day to day. Markets go down because people think that Europe is in trouble or U.S. has got a problem or China is slowing but the reality is that over the long term these economies will do very well."

    He favors consumer stocks because he believes there will be a consumer boom in China as workers' wages increase at a 20 percent clip per year and the Chinese government works to boost domestic consumption's share of GDP."

    “Growth in Macau’s mass revs has been strong in both July and August (mtd). Nomura believes the strong mass visitation this summer, driven by a vacation surge, should continue through the end of the month. Investors should expect a seasonal slowdown in mass visitation in Sept, but the YOY comparison is relatively easy. In other words, Macau’s Sept top-line revenue should slow sequentially by ~MOP 2-3 billion, but the growth rate should accelerate to mid to high teens vs. ~8% in Aug. Keeping them positive into 2013 is the potential for a ~10% lift in visitation once the rail link to Gongbei opens and immigration positions increase ~2x at Gongbei, which could increase players’ time in the casinos by 2-3 hrs/day on capacity-constrained weekends.”

    The sell off in the stock was because of a worry that China was slowing down. The casinos in Macau are on pace to reach 3.3 billion dollars in August as of 08/22/2012

    Citigroup said in an investor’s note earlier this week that it had revised its forecast for Macau’s gaming industry revenue in August.

    The investment bank now expects Macau’s casinos to achieve gross gaming revenue of $3.3 billion dollars for August, up by 7 percent over last year

    Citigroup cited its sources noting that total table gross gaming revenue for the first 19 days in August reached MOP16 billion (or MOP16.6 billion) including an estimated MOP674 million in slot-related revenue.

    Citigroup is the latest brokerage house to revise upwards its forecasts for Macau’s casino industry performance

  • Report this Comment On August 23, 2012, at 9:37 AM, cp757 wrote:

    Rich I love the first name its like Richie Rich . I am sure you heard that before,

    Gov’t tweaks table count for poker and mahjong.


    Union Gaming says Las Vegas Sands is likely to be the largest beneficiary of a new table count math on the Cotai Strip and all of Macau.

    The Gaming Inspection and Coordination Bureau has recently implemented a new way of accounting for poker tables under the general table cap of 5,500 live table games, Union Gaming Research Macau said in an investors note published yesterday.

    If a casino is operating up to 20 poker tables in the same area, the regulator will count them as only one table.

    The same source added that the same happens for mahjong tables.

    Las Vegas Sands has 1,535 mass tables in Macau and thats almost 30% of all the tables in Macau.

    I guess they are going to push them into groups of 20 and buy some more tables.

    “This move is indicative that the government will be willing to work with casino operators to help ease capacity constraints prior to the expiration of the table cap next year.”

    This simply means Macau has so much business they need to take the general table cap off the table's to keep up with demand and Las Vegas Sands is at the right place at the right time. Again.

    Sounds very positive to me.

  • Report this Comment On August 23, 2012, at 10:22 AM, cp757 wrote:

    Rich I would love to see you win a whole bunch of money like Richie Rich and go to the Cotai Strip.

    They have 9,324 4/5‐star luxury hotel rooms and they are very nice. Thats almost 40% of all the rooms in Macau.

    You can play the slots because they have over 30% of all the slot machines with 6,000+ slot machines and ETGs in Macau.

    You can go to a 15,000-seat arena that has hosted a wide range of entertainment and sporting events; and an 1,800-seat theater that feature original production's.

    If you go now you can see Ice World 2012 until September 16th. Ice World is Asia’s largest indoor ice exhibition, occupying 1,656 square metres.

    Las Vegas Sands has over 100 restaurant's in Macau but you can go to Portofino's at The Venetian Macao-Resort-Hotel, on the Cotai Strip. The restaurant is nicely designed with bar areas, dining area with open kitchen and also al-fresco outdoor place.

    Richie Rich I just thought you should know why Sands shares sell for a premium to its competitors, offering a P/E ratio eight points pricier than the average stock in the casino industry, and a P/S ratio more than three times as high as the average.

    Its all about the Billions Las Vegas Sands will make instead of the millions the other casinos will lose. Compare by bottom line profit.

    What company should we look at . Caesars Entertainment has a golf course in Macau. That would not be fair.

    MGM has a casino in Macau. Well part of one. No that would not be fair they lose money just like Caesars Entertainment .

    We can always look at WYNN they have 1000 rooms in Macau and in 2016 they will have 2000 more.

    I guess you can see my problem with the way you look at LVS Rich. I guess with your pinstripe-and-wingtip outfit that entitles you to your opinion.

  • Report this Comment On August 23, 2012, at 10:35 AM, cp757 wrote:

    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

  • Report this Comment On August 23, 2012, at 11:34 AM, cp757 wrote:

    Rich did I tell you Las Vegas Sands owns the Cotai Strip in Macau. Thats like owning the Las Vegas Strip but with 6 times as much revenue.

    Sheldon Adelson built the Cotai Strip because he has 1 billion Asians that can be at the Cotai Strip in 3 hours by plane,train,boat, and car.

    They like to gamble.

    He also has the biggest casino in Singapore that is one of two casinos and they will do more than Las Vegas.

    The Marina Bay Sands is like Singapore's Statue of Liberty in the harbor. They are on pace to do 3.087 billion in total revenue for all of 2012. That is half the revenue of all the casinos in Las Vegas combined.

    In Las Vegas, Las Vegas Sands is on pace for 1.424 billion dollars in revenue just on revenue they have at The Venetian Resort Hotel Casino, The Palazzo Resort Hotel Casino, and The Sands Expo and Convention Center in Las Vegas, Nevada.

    In the 2Q12 Sands Bethlehem in Pennsylvania had an Adjusted property EBITDA increase of 28.1% to $26.9 million. The table games drop was a record $218.4 million, and that was an increase of 44.2%.

    They also had a Slot handle increased 6.8% to $1.01 billion. In order to get a 44% increase in table games revenue you have to take market share from Atlantic City. You need better shows than the competition and better accommodations. With out the best experience you dont get those kind of results.

    Sands Bethlehem in Pennsylvania alone will make more profit than MGM and CZR combined.

    Forget all the noise and look at the reason this stock has a lot more value. JMHO

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