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 ...
It's official. The rebound in stock markets is real. The recovery is coming. And it's finally time to buy global industrial conglomerates.
Or so says Credit Suisse. Yesterday, the prototypical Swiss banker initiated coverage on a whole raft of the S&P's best and brightest, advising its clients to buy up shares of General Electric (NYSE: GE), United Technologies (NYSE: UTX), Emerson Electric (NYSE: EMR), and Cooper Industries. Neutral ratings got handed down to Honeywell (NYSE: HON), Danaher (NYSE: DHR), Tyco (NYSE: TYC), and Rockwell Automation.
So what?
Why should you care what Credit Suisse thinks about some of the biggest names in big business? After all, a casual perusal of the companies on CS' buy list doesn't really lend itself to immediate enthusiasm. Ranging in price from a low P/E of 17 (United Technologies and Tyco) to a high of 32 (Rockwell), the cheapest of these equities is only trading at a near-market multiple. Growth-wise, most of 'em are pegged for low-to-mid-teens performance. And for the dividend lovers among us, the average stock on this list is yielding about 2%. Respectable, sure, but hardly jump outta your britches exciting.
Nor do we have a whole lot to go on, really, as regards the substance underlying its industrial optimism. While a few media sources confirm that the upgrades happened, almost no one has details on why they happened. The exception being on the highest-profile pick of the bunch -- General Electric. Here's what we know about that one.
General Electric's dim switch
Credit Suisse singles out three big trends that have combined to depress GE's results in recent years: weakness in the gas turbines business, further weakness in the spooked health-care industry, and -- you guessed it -- weak performance at NBC-Universal.
But emphasizing the raison d'etre of conglomerates like GE, CS believes we'll see these cyclical downturns reverse themselves in coming years. Meanwhile, CS argues that a "brighter outlook" in the company's involvement with oil and gas services, a peaking of losses (and eventual subsidence) at GE Capital, and a surge in aviation revenues as GE begins building engines to mount upon Boeing 787s will all work to counterbalance GE's underperforming sectors and power the stock higher.
Arguing that earnings growth will drop GE's forward P/E ratio down into the 15 range within a year, and calling this valuation "undemanding," CS thinks now's the time to buy this stock. Is it right?
Let's go to the tape
While noting the caveat that "past performance is no guarantee of future results," I honestly don't know of a better predictor. And based on this analyst's record, I'm inclined to believe that Credit Suisse is right about these stocks. According to our CAPS supercomputer, you see, Credit Suisse is one of the very best stock pickers on the planet, ranking in the top 10% of investors we track.
More telling still, CS is particularly good at picking successful industrial plays ...
|
Company |
CS Said: |
CAPS Rating
|
CS' Picks Beating
|
|---|---|---|---|
|
3M (NYSE: MMM) |
Outperform |
***** |
33 points |
|
Philips Electronics |
Outperform |
**** |
26 points (two picks) |
|
Textron |
Outperform |
**** |
12 points |
... where a whopping 83% of the analyst's recommendations have outperformed the S&P 500, soundly thumping the market's returns.
Foolish takeaway
Personally, I find the P/E ratios on these stocks as uninteresting as their growth rates are unexciting, and their dividend yields uninviting. I suspect that if you eschew the obvious blue-chip plays on an economic recovery and do a little digging in the small-cap sector, you can find more attractive ideas than the ones Credit Suisse is proposing this week.
That said, the analyst's record does impress. If you're inclined to trust your investment dollars to a professional's advice, you could do a lot worse than give Credit Suisse a listen.
