While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Barrick Gold (NYSE:ABX) closed up 2% yesterday after Deutsche Bank upgraded the embattled gold miner from hold to buy.
So what: Along with the upgrade, analyst Jorge Beristain boosted his price target on the stock to $30 per share (from $20), representing about 60% worth of upside to where it sits now. The stock has been beaten in 2013 on slumping gold prices and governance issues, but Beristain thinks the risk/reward trade-off is rather attractive at these levels given Barrick's improved cash flow outlook.
Now what: While Deutsche isn't exactly bullish on gold, the firm sees plenty of room for Barrick to improve. "Our lone upgrade is Barrick, which we raise to Buy from Hold, as we take 'on faith' management's follow-through to respond to corporate governance concerns, cut costs, slim its portfolio and clear a path to free cash flow," Beristain wrote in a note to clients. So while average investors should think twice about speculating on gold prices, Barrick's forward P/E of eight, coupled with its improved operational outlook, might actually be a prudent way to do it.
Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We 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.