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 ...
As the markets lit up neon green this morning, one stock failed to join in the fun. Shaken by a downgrade to "neutral" from Swiss banker Credit Suisse, Coca-Cola (NYSE: KO ) is rapidly losing its fizz.
What does Switzerland have against Coke? Echoing my own sentiments from back in April, Credit Suisse worries that if the dollar has finally stopped shrinking and is now ready to regain some of its lost value, there could be a "dampening effect on potential earnings growth." And if Coke can no longer rely on everywhere-but-here to prop up its profits, the need to repair its ailing U.S. business becomes that much more urgent.
Sounds logical to me -- but then again, I said the same thing, so perhaps I'm biased. Let's go to CAPS for a more objective view of Credit Suisse's skills at picking stocks.
Let's go to the tape
There, we find that Credit Suisse lives up to its reputation as a mighty fine stock picker. Scoring a 95.63 CAPS rating, CS ranks in the top 5% of CAPS members. Picks in the consumer non-cyclical space, as well as in food-related sectors such as fertilizer, have contributed to its success:
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Company
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CS Said:
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CAPS Says (out of 5):
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CS Pick Beating S&P by:
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Mosaic (NYSE: MOS )
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Outperform
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***
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131 points
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Heinz (NYSE: HNZ )
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Outperform
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***
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26 points
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Altria (NYSE: MO )
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Outperform
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*****
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25 points
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CS gets about 55% of its guesses right. Not stellar, but not half-bad in the overall scheme of things. One area where CS has been struggling is in the oil patch:
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Company
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CS Said:
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CAPS Says (out of 5):
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CS Pick Lagging S&P by:
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Petrobras (NYSE: PBR )
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Outperform
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*****
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18 points
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Murphy Oil (NYSE: MUR )
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Underperform
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*****
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61 points
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Frontier Oil (NYSE: FTO )
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Outperform
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****
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28 points
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Fortunately, its color aside, Coke has little in common with oil -- and much more in common with staple goods such as ketchup and smokes. The evidence tells me that CS is more likely right than wrong in downgrading Coke today. Also instructive is that up until today, CS was correct on its November 2007 prediction that Coke would outperform the market -- if just barely.
I'm sticking with my long-held belief that although it's a fine company, as well as one unlikely to be mortally wounded by the recession, Coke at today's price is not worth buying. The company sells for a price-to-earnings ratio of 21.5 and is expected to grow at less than 9.5% per year in the . The PEG ratio is pretty ugly at 2.3.
Worse still, the company generates less free cash flow than it reports as net income, so the stock is probably even more expensive than it looks at first glance. I'm not so foolish (small "f") as to recommend that investors sell this icon of the American economy, but I agree with Credit Suisse today: You shouldn't buy it, either. Wait for better prices.
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