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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Shareholders in tech superstar Google (Nasdaq: GOOG ) got a shock yesterday when Soleil Securities took management aside and gave 'em a good tongue-lashing -- and a downgrade to "hold."
Soleil mocked such "Googlisms" as the diversion of 10% of profits to fund self-described philanthropy in the form of Google.org, the sequestering of 20% of the workweek as "undirected time," and similar endeavors. It also laid out an ultimatum: "the confusing myriad of non-revenue producing Google-products in the marketplace should end." According to Soleil, the global is hurting revenues at the e-giant, yet Google will most likely take its sweet time cutting costs to match.
Soleil even takes a Google-strength -- its $13 billion in net cash -- and judo-like, turns it into a weakness. In the banker's view, this cash stash provides a false sense of security and blinds management to the need to "cut people or investment levels" to maintain profit margins. Further, Soleil implies we're about to see a wave of defections from the Google workforce, as a tumbling share price unlocks the "golden handcuffs" that chain workers to their employer.
Let's go to the tape
With Google's stock down nearly 50% over the past year, I can certainly see why Soleil is feeling nervous about Google. (Albeit, I do wonder why the downgrade is coming after Google's tumble. Seems to me it would have been more helpful had Soleil voiced these concerns before investors incurred the losses.)
Still, the real question here is: Is Soleil just tardy in its analysis, or is there worse news to come? Or more simply, should we heed this downgrade?
Let's go to the tape
At first glance, you might be inclined to listen to Soleil on this one. While the analyst has made its share of mistakes -- notably in the commodities sphere, where so many analysts got caught with their pinstripes down ...
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Company
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Soleil Said:
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CAPS Says:
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Soleil's Pick Lagging S&P by:
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|
Valero (NYSE: VLO )
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Outperform
|
****
|
29 points
|
|
Alcoa (NYSE: AA )
|
Outperform
|
***
|
29 points
|
|
Monsanto (NYSE: MON )
|
Outperform
|
****
|
3 points
|
... it's done pretty darn well in tech:
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Company
|
Soleil Said:
|
CAPS Says:
|
Soleil's Pick Beating S&P by:
|
|
Hewlett-Packard (NYSE: HPQ )
|
Outperform
|
****
|
27 points
|
|
IBM (NYSE: IBM )
|
Outperform
|
***
|
37 points
|
|
Adobe (Nasdaq: ADBE )
|
Outperform
|
****
|
6 points
|
And yet, there's no denying that Soleil fumbled the ball on Google. Since recommending the stock just three months ago, the analyst has already managed to underperform the S&P 500 by 8 percentage points on its pick.
On its face, the record doesn't inspire confidence. But it's the fact that Soleil gave up so soon after picking Google that really gets my goat -- Soleil went from "buy" to "hold" in three short months! What part of "invest for the long-term" don't these guys understand?
Don't give up on Google
As recently as a year ago, any investor with half a brain would have jumped at the chance to own Google for 23 times earnings. Even today, with the world falling down around our ears, most analysts expect Google to grow at about 30% per year over the next half-decade.
And now, with Google trading at a level of cheapness we haven't seen in ... ever, now is the time that Soleil chooses to abandon all hope? Absurd.
Foolish takeaway
Google's a buy. 'Nuff said.
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