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 ...
If you're a shareholder of JDS Uniphase
The reason is simple, if not entirely logical: Cisco Systems
Never mind that other comm-equipment companies seem to be doing just dandy. F5 Networks
Let's go to the tape
Indeed it might. Auriga is one of the worst analysts on the planet. It's been wrong about Ciena, wrong about Riverbed, wrong about JDS-U and Cisco as well:
Companies |
Auriga Said: |
CAPS says: |
Auriga's Picks Lagging S&P By: |
---|---|---|---|
Ciena |
Outperform |
** |
3 points |
JDS |
Outperform |
*** |
5 points |
Cisco |
Outperform |
**** |
8 points |
Riverbed |
Underperform |
*** |
24 points |
Auriga's precisely as good as a coin flip when it comes to picking Communication Equipment stocks, getting as many picks wrong as it does right. Seriously, folks this is the analyst you listen to when deciding to sell JDS Uniphase (or Finisar, or Ciena)?
Personally, I have my doubts about whether Cisco's "disappointing" quarter was really all that much of a disappointment. I'm even less convinced that Cisco's performance is a good reason to slice sizeable chunks off the market caps of entirely different companies. But unfair as all this seems to JDS shareholders today, it's not the worst part of the story. The real tragedy of this week isn't that your stock got punished based on Cisco's bad news, but that Auriga urged you to invest in JDS in the first place.
Dropped call
JDS isn't a total lost cause. In fact, while it may look unprofitable on the surface, it's at least generating free cash flow from its business (unlike Finisar or Ciena). But even with $56 million in free cash flow generated over the last 12 months, and the double-digit growth rate that Wall Street projects for it, JDS still looks overpriced to me at a market cap of $2.3 billion.
Fortunately, there is an alternative to JDS Uniphase.
... and it's right under your nose
How do I think you should you react to Auriga's downgrades? I hesitate to suggest this because it's so obvious, but it seems to me that you're best off buying the stock that sparked this panic in the first place: Cisco.
Sure, Cisco's sales are slowing. But at least they're still growing. And not just sales. Boasting $9.2 billion in annual free cash flow, nearly 20% higher than reported income, Cisco sells for a bargain basement valuation of just 13.3 times free cash flow -- or 10.7 times free cash flow, once you net out the firm's cash hoard. For a company that most analysts still expect to grow at nearly a 12%-per-year clip over the next five years, and one that absolutely dominates the Internet equipment space, that seems to me a very nice price.
And the fact that an overabundance of nervous Nellies have made Cisco 10% cheaper than it was just a couple days ago? Icing on the cake, baby. Icing on the cake.