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Monday'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, our starting lineup includes new buy recommendations for Duke Energy (NYSE: DUK  ) and Alliant Techsystems (NYSE: ATK  ) , but a downgrade for Boston Beer (NYSE: SAM  ) .

Duke Energy: It's electric!
On a generally green day for the market, shares of Duke Energy are currently lagging the Dow Industrials pretty badly, posting only a 0.4% gain against a Dow driving ahead more than a full percentage point. That's hardly the result you'd expect to see today, though, considering that Duke just bagged an upgrade to "buy" from the analysts at Argus.

Then again, though, it's hard to see why Argus upgraded Duke in the first place... considering the price. Valued at more than 19 times earnings today, Duke is growing nowhere near the double-digit rate you'd ordinarily want to see for such a high-priced stock. To the contrary, most analysts think the best Duke can manage over the next five years is about 2% earnings growth. Even with Duke's generous 4.7% dividend yield, that's pretty pathetic growth to be paying 19 times earnings for.

In short, if Argus thinks Duke is worth buying -- let them buy it. You can do better.

All aboard Alliant?
And speaking of "better," one stock responding much better to Wall Street's approval this morning is Alliant Techsystems -- a company probably best known for its rocket engines, but one that's perhaps an even greater play on the surge in gun sales, and ammunition sales, that tend to crop up in election years. This morning, Alliant won an extension of its contract to run the Army's ammunition factory in Independence, Mo. This news, plus an upgrade to outperform from Cowen & Co., is sending the shares flying this afternoon -- up 5% as of this writing.

But here's the thing: While Alliant looks like a pretty good bargain at less than seven times trailing earnings, there's a good reason the stock's so cheap. Actually, two good reasons.

First, if Duke is growing slower than investors should prefer, Alliant is actually expected to post declining earnings over the next five years. It's already generating less than half as much free cash flow as it claims to be "earning" as GAAP net profit, which further reinforces the likelihood of lower earnings. So while Alliant may look like a bargain, looks can be deceiving. 

Boston Beer: Ice cold (in a bad way)
One stock Wall Street's getting right, on the other hand, is Boston Beer -- the company that makes the tasty Sam Adams brew. Over in Switzerland, the bearish bankers at UBS have just downgraded SAM to "sell" -- and for good reason.

Paying no dividend, SAM holds little attraction to income investors. Priced at 26 times earnings, it's not much of a value candidate either -- not with long-term growth estimates averaging a weak 9% per year. Mix in the fact that Boston Beer generates little to no positive free cash flow (a mere $8.2 million over the past year), versus nearly $56 million in claimed GAAP "earnings"), and UBS is right to warn investors away from this stock. SAM looks ice-cold for value investors, and not in a good way.

Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services have recommended buying shares of Boston Beer.

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Related Tickers

12/31/1969 7:00 PM
ATK.DL $0.00 Down +0.00 +0.00%
Alliant Techsystem… CAPS Rating: ****
DUK $78.64 Up +0.05 +0.06%
Duke Energy CAPS Rating: ***
SAM $161.55 Down -1.65 -1.01%
Boston Beer CAPS Rating: ****