Stocks go up, stocks go down -- and so do analysts' opinions of them. This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense and which ones investors should act on.
Today we're looking at a new buy rating for liquid-natural-gas importer -- actually, this week it's an exporter -- Cheniere Energy
Up -- no, down! In -- no, out!
Pity the investors at Cheniere Energy. One moment, their company wants to capitalize on high natural-gas prices in the U.S. by building terminals to import supplies and meet demand. The next moment -- shazam! -- fracking creates a nat-gas supply glut, and Cheniere has to about-face and spend even more money building terminals to export the stuff. These poor guys just couldn't catch a break.
And they can't seem to catch one this morning, either. Capital One Southcoast just assigned the stock a rating of "add" (i.e., "buy") and predicted Cheniere shares would rise 60% in value to hit $20 within a year's time. So what do investors do in response to the news? They sell off Cheniere stock by more than 3%.
It hardly seems fair -- and yet, when you look closely at the company and the analyst recommending it, you can sort of understand why investors would be skeptical. Unprofitable and burning cash, Cheniere always seems to be one step behind the curve on natural-gas pricing trends. (Perhaps it's the $2.2 billion in net debt load that's slowing it down). And Capital One? Ranked in the bottom 20% of analysts we track, it's not much of a forward-thinking visionary itself.
In other news, Disney shares have gone on quite a run since analyst Caris & Company endorsed the stock last October. But with the stock up 40%, Caris is warning that the "easy money" has already been made here, and it's time to begin thinking about taking some chips off the table. Disney's Parks business is doing well, sure, as is ESPN. The problem is that this news is now largely factored into the stock price, which at 16.6 times earnings is starting to look a bit rich for the sub-13% growth prospects at Disney.
While calling Disney an "above average" value and a "$52" stock, the analyst is removing its buy rating on it. Considering the declining quality of earnings at Disney -- reflected in GAAP earnings that overstate real free cash flow by more than 40% -- Caris is probably right to be cautious.
The folks at Stifel Nicolaus could use a lesson in caution from Caris. This morning, Stifel announced it was upping its price target on buy-rated Monster Beverage to $83. And yes, Monster is doing well: Last quarter, sales were up 27.5%, and profits did even better, rising 38%.
But here's the thing: Few analysts think Monster can keep up this pace much longer. In the long term, the consensus is that 15% annual earnings growth is about the most investors should expect. And with Monster shares already trading for 46 times earnings, the PEG ratio on this one is pretty monstrous as well at more than three.
Even at this valuation, Monster's strong balance sheet and steady cash generation argue against actually shorting the stock. But make no mistake: There's little margin for error. So long as all goes well, Monster could hold onto its overvalued price tag. But at the first hint of a slowdown, this story stock could turn into a Grimm's nightmare for investors.
Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services have recommended buying shares of Monster Beverage and Walt Disney. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.