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." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.
So 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, our top trio of newsmakers include the perpetually hated Nokia
Nothing new for Nokia
The hits (to profits) just keep coming for Nokia. Over the weekend, the Finnish phone maker announced plans to cut the price of its new flagship Lumia 900 phone by half. That's big news in and of itself, but the fact that Nokia felt compelled to make the move just three months after introducing the phone is potentially even more significant. It suggests sales aren't exactly surging as planned, and that Nokia feels something drastic was needed to get units out the door.
Unsurprisingly, Wall Street is taking this as bad news, and analyst MKM Partners has cut its price target on the stock by 25%, to a mere $1.50 per share. How'd they come to this conclusion?
"Given the ongoing large operating losses and cash burn, we continue to see all of the value of the company in its intellectual property," MKM says. According to the analyst, if this is the way you value the company, then Nokia's 10,000-odd "patent families," times an average patent value of $560,000 apiece (based on recent comparable deals to acquire patents from Motorola and InterDigital), suggests that a market cap of about $5.6 billion is the "right" price for Nokia.
Of course, this ignores the fact that Nokia currently has more than $5.6 billion worth of net cash on its balance sheet. Theoretically, at least, you could just as easily argue that Nokia is worth twice what it currently sells for -- $5.6 billion for the patents, plus $6.3 billion in cash, results in a sum-of-the-parts valuation of $11.9 billion -- or an 80% upside from today's share price. In MKM's opinion, this justifies a "sell" rating on the stock. I disagree.
A higher QUAL-ity stock pick
Nokia's not the only tech stock Wall Street is having doubts about. This morning, analysts at FBR Capital cut price targets on a whole slew of semiconductor names: ON Semiconductor got hit worst, cut 17% in prospective price, to $15 per share. But Atmel, cut from $10 to $8.50, and NVIDIA, slashed 17% to a new target price of $15, didn't fare much better.
One semi stock that Wall Street does like, however, is Qualcomm. At the same time FBR was wielding the meat cleaver on its semis, you see, analysts at Susquehanna Financial were urging investors to take a close look at Qualcomm shares as a way to play the expected iPhone 5 introduction. And Susquehanna isn't alone in its optimism. This morning, investment banker Societe General seconded the positive emotion about Qualcomm, removing its sell rating on the stock and setting a price target of $57.
They're absolutely right to do so. With its P/E ratio of just 16.4, boasting strong free cash flow, and a projected growth rate in excess of 15%, about the worst thing you can say about Qualcomm today is that the stock may be only "fairly priced." Factor in a bank account that's overflowing with nearly $14 billion in net cash, though, and it soon becomes apparent that Qualcomm is actually selling for a discount.
My guess: It won't be long before analysts like SG take the next logical step and upgrade Qualcomm even further, to a full-fledged "buy."
Time to tune in to Sirius?
Last but not least, we turn to Sirius XM Radio, recipient of a new "equal weight" rating from Barclays Capital this morning. According to the Brit banker, Sirius is worth at least $2.25 per share -- which makes you wonder why, today, investors are refusing to budge from their bid price of $2-point-oh-five on the stock?
Price probably has something to do with it. After all, at nearly 26 times trailing earnings, Sirius still isn't obviously cheap -- not even with long-term growth expectations hovering around 21%. Plus, free cash flow at the firm no longer exceeds reported net income. To the contrary, the $438 million in cash that Sirius brought in last year lags GAAP net earnings by about 4%.
Long story short, while Sirius isn't overpriced enough to short anymore, it's not yet cheap enough to buy ... but here's the good news: One of the stocks named above is cheap enough to buy, and in fact, in our recent report on The Next Trillion-Dollar Revolution, we urged investors to just that. Find out how to buy the best and skip the rest. Download our free report today.
Whose advice should you take -- Rich's, or that of "professional" analysts like MKM, Societe General, and Barclays? Check out Rich's track record on Motley Fool CAPS and compare it with theirs. Decide for yourself whom to believe.
Fool contributor Rich Smith owns shares of NVIDIA and Nokia, but he holds no other position in any company mentioned. The Motley Fool owns shares of Qualcomm. Motley Fool newsletter services have recommended buying shares of NVIDIA and InterDigital and writing puts on NVIDIA. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. The Motley Fool has a disclosure policy.
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