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." Here, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.
And speaking of the best …
Are smartphones the future of computing? A lot of folks think so, and thanks to the wonders of the stock market, you have almost as many possibilities to bet that they're right. Pick a stock (any stock) -- Apple
… or so says Barclays Capital.
Yesterday, Barclays initiated coverage of InterDigital, calling the company "well positioned to capitalize on mass market adoption of 3G devices as well as … 4G through the licensing of its standards-based IP portfolio." InterDigital promptly did its best to prove Barclays right, reporting earnings a few hours after the upgrade, beating analyst revenue projections and beating modestly on earnings.
Quarterly static notwithstanding, Barclays sees a grand long-term future for InterDigital, which the banker praises as "a leading play in the industry." And in the medium term, too, Barclays sees every hope for the stock to outperform. This summer, bankrupt Nortel's patent portfolio goes up for auction, with everyone from Apple, Google, and Research In Motion
Good things come in pairs
InterDigital shareholders will doubtless also be pleased to hear that Barclays has a superb record picking stocks like InterDigital. Indeed, there aren't a whole lot of investors out there with records superior to Barclays'. This top-5%-ranked stock picker outperforms all but a handful of the investors we track on CAPS.
And Barclays is no slouch of a communications equipment stock picker, either. Fact is, this analyst has managed to outperform the market on an astounding 70% of its recommendations in the industry, headlined by a rocking 485-percentage-point winner in Hughes Communications
Barclays's Picks Beating
|F5 Networks||Outperform||***||365 points|
|Ciena||Outperform||**||106 points (picked twice, and both times right)|
Source: Motley Fool CAPS.
Suffice it to say, then, that when an analyst like Barclays throws its support behind a stock like InterDigital, I sit up and listen -- and you should, too. What's more, there are plenty of objective reasons to like this stock in addition to Barclays's endorsement.
Chief among them: the price. Costing less than 17 times earnings today, InterDigital looks at worst fairly priced if it can achieve Wall Street's consensus projection of 17.5% long-term profits growth. But InterDigital could do even better than that. According to Barclays, the company could earn as much as $3 a share this year, and more in 2012, if it succeeds in signing up LG for a license renewal. Factor in the $12 net cash on the company's balance sheet, and Barclays believes the stock is worth $56.
Valued on InterDigital's pre-earnings price, this suggests potential upside of 16% on the stock. New investors, however, look like they may score an even better deal, as Wall Street responds to the report by selling off the stock. Here's hoping yester-evening's pessimism continues long enough to give you a chance to buy this stock on the cheap.
InterDigital and Apple are Motley Fool Stock Advisor picks. Google is a Motley Fool Inside Value and Motley Fool Rule Breakers recommendation. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple, Google, Texas Instruments, and TriQuint Semiconductor.
Fool contributor Rich Smith does not own (nor is he short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty , where he's currently ranked No. 560 out of more than 170,000 members. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.