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.
And speaking of the best ...
Poor NVIDIA (NASDAQ:NVDA). These guys just can't catch a break.
It's not enough that the stock is kicking around near its three-year low. So far this week, two of Wall Street's best stock pickers have weighed in with suggestions that the pain isn't over yet. On Monday, Swiss banker UBS (NYSE:UBS) downgraded the shares to "sell" (smart call, by the way; NVIDIA has already underperformed the market by nearly 11 percentage points in four days). And yesterday, Lehman Bros. (NYSE:LEH) took its own turn kicking NVIDIA while it's down, pulling an "overweight" rating and downgrading NVIDIA to "equal-weight."
Lehman says it's convinced that "weaker global end market conditions for both desktop and notebook graphics, with lower end mix shift and weaker chipset demand from core chipset customer Advanced Micro Devices (NYSE:AMD) may bring sales and EPS estimates lower."
English, please?
OK, I'll translate. Lehman says that consumers are buying fewer graphics chips for their computers. It also believes that when people do buy graphics, they're opting for cheaper, lower-margin chips. That suggests lower revenues, and lower margins on those revenues, for NVIDIA. (Also, Lehman opines that AMD is buying fewer chips from NVIDIA -- which only stands to reason, seeing as AMD is NVIDIA's primary competitor!)
They pay analysts for this kind of research?
Apparently so. But before we scoff, let's give credit where it's due. Lehman's stock may be in the tank, but the stock shop does a passable job. These are, after all, the guys who rode Research In Motion (NASDAQ:RIMM) and First Solar (NASDAQ:FSLR) to riches:
|
Company |
Lehman Said: |
CAPS Says: |
Lehman's Pick Beating S&P by: |
|---|---|---|---|
|
Research In Motion |
Outperform |
** |
151 points |
|
First Solar |
Outperform |
** |
71 points |
Yeah, but ...
I know what you're going to say. And yes, they're also the guys who picked AMD and RF Micro Devices (NASDAQ:RFMD), with disastrous results:
|
Company |
Lehman Said: |
CAPS Says: |
Lehman's Pick Lagging S&P by: |
|---|---|---|---|
|
AMD |
Outperform |
** |
74 points |
|
RF Micro Devices |
Outperform |
***** |
40 points |
And you're right. A couple of winners in sectors adjacent to silicon do not outweigh two totally boneheaded mistakes right smack in the middle of Semi Valley. Especially when the banker in question gets only about 51% of its picks right overall.
Invest for the long term
Moreover, the numbers just don't add up to a bear thesis here -- not for investors with long-term focus. When I look at NVIDIA, for example, I see a company that is:
- Coming off a miserable quarter in which it booked a $196 million one-time charge, and suffered a $0.22-per-share loss
- But despite the loss, still trades for only 11 times its trailing-12-months earnings, and 12 times trailing free cash flow
- And that will eventually recover, giving rise to what most analysts agree will be 15% annual profits growth over the next five years
That gives investors a sizable margin of safety on their investment, which, to me, makes NVIDIA look downright cheap.
Then again, I've got years to wait for an investment in NVIDIA to pay off. But Lehman? These guys and gals count their future in hours, and it may be only days before they go "poof."
