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 Carnival Corporation (NYSE:CCL) slipped 1% this morning after Jefferies downgraded the cruise operator from hold to underperform.
So what: Along with the downgrade, analyst Ian Rennardson planted a price target of $33 on the stock, representing about 18% worth of downside to yesterday's close. While momentum traders might be attracted to the stock's strength over the past three months, Rennardson thinks that Wall Street is underestimating the execution risks surrounding Carnival's potential earnings turnaround.
Now what: According to Jefferies, Carnival's risk/reward trade-off is rather unappealing at this point. "We acknowledge the significant recovery potential in earnings for CCL over the next few years, albeit with significant execution risk, but believe this to be more than priced into the share prices," Rennardson noted. "Our forecasts are based on a 1% fall in yields in 2014, followed by c3% increases in 2015 and 2016." With the stock up more than 30% from its 52-week lows and trading at a P/E of around 30, waiting for a wider margin of safety certainly seems prudent.
More reliable ways to build wealth
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend-paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.
Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.