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." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)
Given this, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about.
Today, we're going to take a look at several high-profile ratings moves on Wall Street: new and improved price targets for MasterCard
What's in your wallet? (Seriously. Better check).
Reports of a 1.5 million-card data breach at Global Payments earlier this week had some investors again questioning the integrity of the credit card industry. But over at Oppenheimer, analysts are looking past the bad press to find a bright future for global credit card duopolists MasterCard and Visa.
Oppy was already optimistic about the card companies, mind you. But rechecking its numbers recently, the analyst came to a startling conclusion: Even after running up 65% and 55% over the past year, respectively, both of these stocks remain significantly undervalued. According to the analyst, shares of MasterCard that fetch $435 today could reach as high as $475 within a year. And Visa's an even better bargain. At the $140 target price Oppenheimer just placed on it, the stock could run up close to 20% before a year is out.
I agree ... in part. With both stocks expected to post better than 19% long-term earnings growth, Visa, with its 21 P/E, is clearly the stock with the greater profit potential, for the simple reason that at 29 times earnings, it costs more to buy similar growth prospects at MasterCard. That said, even Visa's 21 ratio is no great bargain -- more like a "mediocre" bargain. My advice would be to keep your wallet closed for now and wait for better prices on both these stocks.
Time to LinkedIn?
And while we're on the subject of great businesses at less-than-attractive prices, let's wander over to LinkedIn. The job-seeking social networker scored an endorsement this morning from the folks at Capstone Investments, who argue this near-$100 stock is easily worth 25% more. Unfortunately, this advice sounds a bit optimistic.
At more than 840 times earnings today, LinkedIn already has a lot of high hopes baked into its stock price. What's more, even if the company grows as planned and earns the expected $1.09 per share next year, Capstone's price target suggests you should be happy to pay a triple-digit multiple (115) for profits that LinkedIn won't even earn for two more years. (And might not earn even then). Even if LinkedIn proves to be something other than an Internet fad, even if it survives and thrives, that's some pretty pricey pie in the sky. Pass.
And finally we come to an idea worth considering. Yesterday, as you may have heard, the semiconductor specialists at SanDisk
Specifically, the analyst is urging investors to buy shares of graphics chip maker NVIDIA, which, according to Cantor, is the "primary beneficiary of numerous disruptive technology trends." Cantor believes NVIDIA's "low-power multi-core application [Tegra] processors" will gain traction in the smartphone and tablet space going forward and will prove particularly popular in the "Windows-8 on ARM" space.
Granted, SanDisk's surprise has taught us all that nothing's certain in semiconductor forecasts. Still, NVIDIA's enviably cheap at 12 times free cash flow, which drops to less than eight on an enterprise value-to-free cash flow basis, and this provides a sizable margin for error on this guess. Even if Cantor is wrong, even if NVIDIA is able to grow no faster than the 14% growth rate that Wall Street has it pegged for, the stock looks cheap as is. I'd be a buyer.
In fact, I am a buyer (owner) -- and an endorser of NVIDIA's chances on Motley Fool CAPS. And I'm not the only one. If you want to learn more about why so many Fools like five-star CAPS-rated NVIDIA, read all about it in our new Fool report: "The Next Trillion Dollar Revolution."
Whose advice should you take -- mine, or that of "professional" analysts like Oppenheimer, Capstone, and Cantor Fitzgerald? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.
Fool contributor Rich Smith owns shares of both SanDisk and NVIDIA. He also has public recommendations available on more than 50 separate companies. Check them out on Motley Fool CAPS, where Rich goes by the handle "TMFDitty" -- and currently ranks No. 369 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy.
The Motley Fool owns shares of LinkedIn and MasterCard. Motley Fool newsletter services have recommended buying shares of LinkedIn, Visa, and NVIDIA. Motley Fool newsletter services have recommended writing puts on NVIDIA.
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