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 ...
Credit Suisse began coverage of the "large-capitalization media sector" this morning, assigning brand-spanking-new ratings to Time Warner
Citing a change in how content gets delivered to you, the home viewer, Credit Suisse argues that content is king once more, and whoever's got it will benefit most from a brave new world of "targeted, on-demand, and digital distribution systems." Perhaps counterintuitively, the Swiss think News Corp. has the best content, yet deserves only a "neutral" rating because it's a bit pricey. In contrast, Disney's entertainment empire and massive content library is certainly diverse -- and, according to Credit Suisse, cheap.
So it seems that while content may be king, price may be the emperor. Which raises the next question: If price is key, why not give Time Warner a buy rating, too? At just less than 12 times trailing earnings, its share price sure looks like the cheapest of the bunch. In light of the apparent contradictions in Credit Suisse's logic, perhaps we'd better give the banker's record a quick once-over, to see if it really knows what it's talking about.
Let's go to the tape
Fortunately, Motley Fool CAPS can help with that. Tracking Credit Suisse's every move over the past year, we've got the firm pegged at a CAPS rating of 91.43, with a record of making slightly more right calls (52%) than wrong.
At last report, here are its top three winners that are still recommended:
|
Company |
Credit Suisse Said: |
CAPS Says (Out of 5): |
Credit Suisse's Pick Beating S&P by: |
|---|---|---|---|
|
Priceline |
Outperform |
*** |
109 points |
|
EDO |
Outperform |
*** |
77 points |
|
Freeport-McMoRan |
Outperform |
***** |
71 points |
Foolish takeaway
By racking up large scores on its correct calls, Credit Suisse has done a good job of transforming a mediocre win/loss record into strong outperformance for those who heed its advice. Considering this, when it comes to the media sector, I actually think the Swiss are being a bit too conservative -- especially given that they claim to be emphasizing price over quality. I mean, consider the valuations here:
|
Trailing P/E |
5-Year Growth Rate |
||
|---|---|---|---|
|
Time Warner |
12 |
14% |
0.9 |
|
News Corp. |
20 |
19% |
1.0 |
|
Disney |
16 |
14% |
1.1 |
|
Viacom |
18 |
14% |
1.3 |
Comparing price-to-earnings to analysts' projected five-year growth rate, Time Warner is easily the cheapest of the bunch, and News Corp. is right behind it. Disney, the sole recipient of the equivalent of a buy rating from Credit Suisse, is actually the second most expensive after Viacom. Overall, the whole sector looks pretty reasonably priced to me, and I agree with Credit Suisse that Disney deserves a buy rating. But if it were I giving the ratings, I'd have done the same for Time Warner and News Corp. as well.
(Word to the Foolish: I should point out that both Disney and Time Warner are part of the Motley Fool Stock Advisor list of recommended companies -- a list that, on average, has outperformed the S&P 500 by better than 2-to-1 over the last five years. And yes, we've got Credit Suisse star Priceline in there, too. To see the other members of this elite club of stocks, grab yourself a free trial to the service right here.)
