This Just In: More Upgrades and Downgrades

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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 going to take a look at three high-profile ratings moves on Wall Street: A suggestion to sell Sirius XM Radio (NAS: SIRI) , balanced by a massive rise in price target on solar operator First Solar (NAS: FSLR) , and a bona fide upgrade for Advanced Micro Devices (NYS: AMD) . Let's dive right in.

Barclays bashes Sirius
We'll get the bad news out of the way first. This morning, Barclays Capital took (ahem) serious issue with my suggestion last week that Sirius XM was undervalued. Initiating coverage with an underweight rating (for stock novices, that's Wall Street-speak for "sell"), Barclays warned that after running up 21% over the past year -- and 1,650% from its 2008 lows (!) -- Sirius' share price now prices in all of the company's "healthy ... material growth in EBITDA," and more.

The analyst warns investors not to discount the danger from upstart rivals such as Pandora (NYS: P) , which Barclays calls a "real" threat in, among other things, the market for car audio entertainment. Barclays' biggest concern about Sirius, though, seems to be that investors are counting on more growth than the company can deliver. Rather than the 30% long-term growth projection that I cited last week, Barclays thinks 19% annualized is a more realistic target. And given that Sirius costs 21 times free cash flow today, this makes the stock look a bit pricey.

Barclays still likes the company, mind you. The banker simply suggests that if you want to own Sirius stock, you should take a more roundabout route, and instead buy major shareholder Liberty Media (NAS: LMCA) , which Barclays asserts gives investors exposure to Sirius at roughly a 25% discount to shares of Sirius proper, even if you discount Liberty's other assets by 20%.

Can't argue with that. I like Sirius myself, and have publicly recommended it in my CAPS account. But if you can get the same shares at a discount, and are willing to wait for a liquidity event to unlock the value of Liberty's holdings, then more power to you.

Reaching for the stars at First Solar
Next up, First Solar got a big thumbs-up from Auriga U.S.A. this morning, when the analyst crunched some numbers on the stock and came to an astounding conclusion: First Solar isn't worth the $41 Auriga used to think it should cost, or even the $47 that investors are paying for it now. In fact, First Solar is worth an astounding $53 a share (!), or nearly 30% more than previously estimated. Gee, who'dathunkit?

There are a couple interesting things about this ratings move. First, there's almost nothing behind it. Auriga itself admits that "our revenue and EPS estimates have not changed." Only "our stance on First Solar's valuation has." According to the folks at streetinsider.com, Auriga has decided that "solar PV valuations are for now anchored to tangible book value." But in fact, First Solar's TBV was most recently pegged at... $41.30 per share. (You read that right. The same price Auriga had First Solar pegged at before the price target hike.)

The second interesting thing here is Auriga itself. In stark contrast to Barclays, which ranks in the top 10% of investors we track here at CAPS, Auriga ranks in the bottom 20% of investors, "boasting" a record of underperforming the market by more than 6 percentage points per pick. If that's the kind of advice you want to listen to when choosing to invest in a stock, well, good luck. Personally, when I see that First Solar has burned through $520 million in negative free cash flow over the past 12 months, let's just say that "buy" is not exactly the first reaction that comes to mind.

Advanced Micro Devices inside?
Last but not least: AMD. Citing predictions of 50% growth in production capacity in 2012, and "improved execution at the Intel-alternative," ace tech investor Longbow Research upped its rating on AMD to "buy," and slapped a $10 price target on this $7 stock.

Longbow's projecting $7 billion in sales at AMD this year, and $0.82 per share in pro forma earnings (followed by $7.7 billion revs for 2013, and $0.89 per share). The multiples implied by these estimates -- nine times current year earnings and eight times forward -- don't look out of line for the 10% long-term growth Wall Street expects to see at AMD or even the 8.5% near-term growth Longbow foresees.

And what can I say? Longbow may be right about this one. Several months ago, I highlighted AMD's progress in transitioning from burning cash to churning it out. Last year, the company proved me right by ending 2011 with $132 million in free cash flow to its credit. That's still not enough to get me enthused about the stock, but it's enough that I'll say this: AMD is no longer an obvious short. In fact, it just might be as big of a bargain as Longbow suggests.

Whose advice should you take -- mine, or that of "professional" analysts like Barclays, Auriga, and Longbow? Check out my track record on Motley Fool CAPS, and compare it to theirs. Decide for yourself whom to believe.

And if you're looking for more profitable investing ideas in the world of tech, read the Fool's new -- and free -- report on the industry: "The Next Trillion Dollar Revolution."

At the time this article was published The Motley Fool owns shares of First Solar, and Motley Fool newsletter services have recommended buying shares of First Solar, but Fool contributor Rich Smith does not own shares of, nor is he short, any company mentioned above. He does, however, have public recommendations available on 52 separate companies. Check them out on Motley Fool CAPS page, where he goes by the handle "TMFDitty" -- and is currently ranked No. 377 out of more than 180,000 CAPS members.The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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