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, our headlines include a higher price target assigned to Plum Creek Timber (NYSE: PCL  ) , alongside downgrades for both Dell (UNKNOWN: DELL.DL  ) and Yelp (NYSE: YELP  ) . Let's dive right in.

Plum Creek gets greener
Our first notable move of the morning is timber REIT Plum Creek Timber, which just caught an updraft of positive sentiment from analysts at BMO Capital Markets. BMO is tweaking a number of timber-stock price targets this morning -- Weyerhauser, Resolute Forest, and Fibria Cellulose among them. But perpetual favorite Plum Creek is probably the most important.

According to BMO, Plum Creek shares are likely to go to $50 before the year is out. Granted, with the stock already hovering around $47, that may not sound like much. But when you combine it with Plum Creek's generous 3.6% dividend yield, it makes for a respectable 10% or so in potential profit.

Problem is... I'm not looking for "respectable" investments, and neither should you. Instead, we should both be looking for stocks that offer the potential to earn unseemly amounts of profit. And great a company as Plum Creek might be, it's simply not the kind of stock that that promises the potential for lots of filthy lucre.

To the contrary, priced north of 41 times earnings, but expected to grow its profits at an annualized rate of just 2.5% over the next five years, I'd argue Plum Creek is an overpriced slow-grower, and unsuitable for your portfolio.

How swell is Dell?
Looking for a better alternative? Lately, a lot of folks have been arguing that Dell looks just swell. Rumors are swirling of a possible management buyout, with private equity participating. And yes, at less than nine times earnings, and an even cheaper price-to-free cash flow valuation, Dell shares are a whole lot cheaper than Plum Creek -- and growing faster to boot.

But while the stock might offer a relative bargain when compared to BMO's pick, Dell's still overpriced when weighed on its own merit. Yesterday, I argued that the stock's 6% projected annual earnings growth rate was too slow to justify even its seven times FCF valuation. This morning, yet another analyst agreed with me when Argus Research announced it was cutting the stock's rating to hold from buy.

Argus discounts the rumors of a "take private" deal being in the works. But even if it's wrong about that, and someone does want to buy Dell, the question of how much they'd be willing to pay -- and specifically, whether anyone would bid above the shares' current cost -- remains up in the air. Until that question is answered, a purchase of overpriced Dell isn't an investment. It's rank speculation.

No help for Yelp
Last and least, we come to online "urban city guide" Yelp, which may be doing some yelping (of pain) itself after this morning's downgrade to underperform by Northland Securities.

Yesterday, social networker Facebook introduced a new "Graph Search" feature for finding restaurants and other businesses, which StreetInsider.com calls a "direct attack" on Yelp's business model. Personally, I think it's too soon to say how big of a threat this is to Yelp. Unfortunately for Yelp shareholders, you don't have to assume success for Facebook to understand that Yelp is a sell.

Unprofitable today and selling for -- I kid you not -- a 989.5 P/E ratio on forward earnings estimates, Yelp shares are dramatically expensive. So expensive that the term "overpriced" just can't quite describe the disconnect between this stock's price, and its (minimal) value.

My advice: There's no use shouting for help if you own this one. With more than two-thirds of Yelp shares sold short already, no one's coming to rescue you. The only thing to do now is sell, and try to save yourself.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook.

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