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 talking Boeing (NYSE: BA) and NVIDIA (Nasdaq: NVDA) on the upgrades side, and in less happy news, it's Swisher Hygiene (Nasdaq: SWSH) getting hit with a downgrade to "neutral." Let's get the bad news out of the way first.
Swisher just got swept offstage
Embroiled in an accounting scandal and the following lawsuits, two weeks ago sanitation services provider Swisher Hygiene hired new CFO Michael Kipp to help clean up the mess. But right about now, Mr. Kipp may be wondering just what he's gotten himself into. Over at R.W. Baird, analysts have just pulled their "outperform" rating on the stock and downgraded it to "neutral." Simultaneously, Baird cut its price target on Swisher by 25% to just $3 a share.
It's not hard to see why. The company isn't currently profitable, and while management believes it can turn a profit next year, investors should be skeptical of such claims from a company with a long track record of losses. While Baird's new price target suggests there's still about 20% upside to the stock, I humbly submit that there are probably better companies out there that offer at least as much profit potential -- and with substantially lower risk.
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Can Boeing bounce back?
Aerospace titan Boeing hasn't done quite as poorly as Swisher's 50% share-price loss. Even so, Boeing shareholders can't be too pleased at seeing their stock basically flatlined for the past 12 straight months.
But there's good news! This morning, analysts at Oppenheimer made the case for why Boeing won't remain grounded for long. Arguing that Boeing's new 787 Dreamliner is "a big deal," the analyst predicts Boeing will see years of top-line growth as it begins delivering 787s to its long-suffering customers -- and collecting payment for same. Oppy thinks this plane's prospects will transform Boeing into a $90 stock over the next 12 months, returning 25% profits to shareholders and helping Boeing to outperform the market handily.
And Oppenheimer could be right. As I mentioned earlier this month, Boeing at 12 times earnings doesn't look like too bad a bet. Most analysts agree that the company should be able to grow GAAP earnings at close to 11% per year over the next five years. Add a 2.4% dividend payout, and Boeing really does start to look attractive. While I'm still concerned at the company's weak free cash flow, an accelerating pace of 787 deliveries could solve that problem in a jiffy.
Long story short, I'd rather be long Boeing than short right now.
Envision a better NVIDIA
And finally, we come to Canaccord Genuity's upgrade of NVIDIA. Everyone knows there's a problem with the personal-computer industry right now. It's the reason a lot of analysts have been down on hard disk drive makers Seagate (NYSE: STX) and Western Digital (NYSE: WDC), for example. The worry is that "tablet" computers are eating the PC industry's lunch, and that this is bad news for sales of companies that sell PC parts. But if you think this is bad news for NVIDIA, which provides the semiconductors that power the graphics in PC screens, think again.
As Canaccord points out, NVIDIA doesn't just do graphics for PCs, but also for the smartphones and tablets that are stealing market share from PCs. Thus it's a sort of "heads I win, tails I still win" story. NVIDIA is seeing real strength in its sales of Tegra and Kepler chips, despite the PC slowdown, and as a result, Canaccord thinks the stock is eminently buyable -- and I agree.
Priced at just more than 15 times earnings but sporting a growth rate that verges on 16%, NVIDIA is at worst a fairly priced stock -- and one with limited downside. Even better, NVIDIA generates free cash flow at about a 16% better rate than it gets to report as net income -- meaning the stock is arguably even cheaper than it looks, and therefore an even more compelling buy.
This is why analysts at the Fool think NVIDIA is quite possibly the best company to bet on to lead "The Next Trillion Dollar Revolution." It's why on Motley Fool CAPS, I've publicly endorsed NVIDIA as a stock likely to "outperform" the S&P 500. And it's why I stand by this call today.
Whose advice should you take -- mine, or that of "professional" analysts like Baird, Oppenheimer, and Canaccord? Check out my track record on Motley Fool CAPS and compare it to theirs. Decide for yourself whom to believe.
