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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Much was the lamentation when Amazon.com
The legendary Swiss banker issued a slew of new stock reports yesterday, initiating coverage across the length and breadth of the electronic entertainment industry. And the best news: UBS likes most of these stocks.
Generally speaking, UBS seems to be anticipating a revival of fortunes across the e-commerce industry. It also initiated coverage on Amazon.com itself, calling the firm a "core e-commerce holding," and Google
Less attractive, in the banker's view, are:
(NASDAQ:EBAY), which UBS believes is "executing the transition well" from pure auctioneer to more of a fixed-price retailer.
(NASDAQ:NFLX), which is negotiating a transition of its own as the world evolves from a DVD model to one in which digital transmission of movies over the Internet becomes the norm.
- UBS seems less pessimistic than most about Yahoo!'s
(NASDAQ:YHOO)decision to outsource its search department to Microsoft (NASDAQ:MSFT), calling this the "right path" for Yahoo!
Each of these latter three, however, UBS rates only "neutral."
Why should you care what UBS thinks?
You needn't, necessarily. Fact is, a little bit of fifth-grade math is about all you need to run the numbers on your own, and determine that UBS is basically right on the money on most of these stocks. Generally speaking, they all look pretty fairly valued to me.
But if it's of any comfort, you should also know that UBS has a pretty strong record of making recommendations that "work out" for investors. In fact, three years of data-crunching here at Motley Fool CAPS reveal to us that the banker outperforms close to 90% of its peers.
A Fool begs to differ
If there's one point on which I differ with UBS' assessments, it's that I'm not 100% certain it's valuing eBay's prospects correctly. Valued at $25 billion by the market (after you net out its cash and debt), and with $2.2 billion in trailing free cash flow, eBay looks almost perfectly priced for 11% growth -- the rate at which most analysts expect eBay to increase its profits annually, over the next five years.
But while such a valuation takes into account eBay's most obvious asset (the cash), it misses the company's stakes in such potential producers of gangbusters growth as:
- eBay's Argentine analog, MercadoLibre
- Online payments specialist PayPal
- Online ticket teller Stubhub.com
- The soon-to-IPO Skype
- That bane of the newspaper industry, Craigslist.
Between its core business in auctions, its gaining traction in the fixed-price marketplace, and these five powerful-but-unknown quantities, it seems to me that eBay's 11% growth estimate might be just a wee bit conservative.
Mind you, I'm not saying UBS is clearly wrong about this one ... I'm just sayin'.
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 816 out of more than 135,000 members. Think you can do better than Rich? You'll never know until you sign up and get started in CAPS. It's free.
Google and MercadoLibre are Motley Fool Rule Breakers recommendations. Microsoft and eBay are Motley Fool Inside Value selections. Amazon.com, eBay, and Netflix are Motley Fool Stock Advisor picks. The Fool's disclosure policy smiles when it speaks of the best beaches.