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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
Question: What person in his right mind would advise buying a stock selling for several hundred dollars a share?
Answer: Anyone who has ever heard of Berkshire Hathaway
Question: OK, well, what person in his right mind would advise buying a newspaper stock in the age of the Internet?
Deutsche Bank, which upgraded Washington Post
Question: And that makes a difference?
Answer: Sure does. For one thing, your average newspaper company is losing money and selling for a price-to-book ratio that doesn't place a large premium on its assets. New York Times
Contrast those valuations with the more than 12 times book valuation that tiny education concern Strayer
Recognizing logical disconnects like these, and pouncing upon them, has helped win Deutsche a CAPS rating of 88.20. I suspect that the Post's price of just 2.4 times book value -- in between the newspapers named above, despite earning a profit in all of its divisions and earning almost twice as much from education as from newspapers -- inspired this morning's particular pounce.
Mind you, while I understand Deutsche's logic, I don't necessarily agree with it. Remember, Deutsche has an above-average record as a stock picker, but it still gets only marginally more picks right than wrong.
The way I see it, though, the Post shouldn't be judged just on its book value, but on its profits. As good as its Kaplan education division is, and despite its profitable TV business, the analysts who follow this company generally don't expect profits to grow faster than 8% per year over the next five years. I simply don't think this growth rate justifies a multiple to trailing earnings of 26 times. Long story short, the Post is overpriced.
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Berkshire Hathaway is a recommendation in both our Motley Fool Stock Advisor service and our Motley Fool Inside Value service.
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 15,234 out of more than 70,000 players. Rich does not own shares of any company named above. The Fool has a disclosure policy.