While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of ARM Holdings (ARMH) and Audience (NASDAQ: ADNC) fell 2% and 4%, respectively, after Benchmark downgraded the pair of semiconductor companies from buy to hold.
So what: Along with the downgrades, analyst Gary Mobley lowered his price target on ARM to $13 (from $14) and on Audience to $50 (from $54), suggesting that he sees very limited upside on the pair of chipmakers. While momentum investors might be attracted to the sector's recent outperformance, Mobley thinks the strength is unsustainable due to weakening macroeconomic conditions.
Now what: Benchmark believes ARM and Audience are particularly vulnerable to pullbacks. "In the case of ARMH, shares are trading at lofty valuation multiple, making shares susceptible to underperformance should the chip group fall out of favor," noted Benchmark. "In the case of Audience, high exposure to Samsung could translate into soft 4Q13 guidance." With both stocks still well above their respective 52-week lows and sporting lofty forward P/Es -- 38 for ARM and 26 for Audience -- it's difficult to argue with Benchmark's reasoning.
