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: UPS (NYS: UPS) just got hit by a downgrade, while OmniVision (NAS: OVTI) got upgraded, and the price targets on Apple (NAS: AAPL) went through the roof.

More downs than ups for UPS
Bad news first: UPS has finally inked its contract to buy Dutch rival TNT Express. Some pundits are saying this is the nail in FedEx's (NYS: FDX) coffin and shuts it out of Europe forever. But over at ace stock shop Stifel Nicolaus (one of the best Wall Street analysts around), worries are beginning to arise about what this deal means... not for FedEx, but for UPS itself.

While calling the deal a "long-term positive for UPS," Stifel cautions that "our experience with large-scale network integrations (like DHL/Airborne and Yellow/Roadway) tells us they start with much more potential benefit than is ever realized." Yellow/Roadway, by the way, was the merger that produced YRC Worldwide -- a real 50-car pile-up of a stock. Of course, UPS is saying its merger will save UPS/TNT as much as $0.50 per share by 2017, but Stifel counters that such savings "are almost as hard to attain as they are to estimate" premerger.

I agree. And what's more, UPS doesn't have much of a margin of safety if TNT blows up. At 21 times earnings, the stock looks pricey for its 13% projected long-term growth rate. If you think TNT can juice that growth rate -- great. Ignore Stifel's advice, and buy the stock. On the other hand, if you take history as your guide, and understand how rarely promised "synergies" appear in real life, consider taking the low (priced) road instead. FedEx at 17 times earnings costs less than UPS, and with 16% growth in its future, it's growing faster as well.

Seeing value at OmniVision
Speaking of growing faster, you may not have heard about this yet, but Apple has a new iPad. And a (pretty) new iPhone. And it's working on a newer iPad. And a newer iPhone. (Lather, rinse, and repeat.) In many of these devices, a little camera-chip maker called OmniVision plays a big role. And it's a role that won the stock an upgrade this morning, courtesy of the analysts at Needham & Co.

Observing that OV now operates the front and back cameras on the new iPad, Needham argues the company could be raking in as much as $3.28 in revenue from each iPad sold. That could be as much as $191 million or so in the coming fiscal year, Needham thinks, with even more money coming if OV wins slots in the iPhone 5.

Priced at 12 times both Needham's estimate for this year's earnings and next year's as well, the stock looks cheap at 15% projected long-term growth. Considering how well OmniVision worked out for me when I last recommended it on CAPS, I'd probably buy it again myself at that price ... if OmniVision had any free cash flow to speak of (which it no longer does). Right now, the company's back to burning cash. But stay tuned: If and when that changes, I'll make sure to tell you about it.

Apple grows fastest in the spring
Spring has sprung, and speaking of springs, price targets for Apple are resembling uncoiled springs this week. Reports of 3 million new iPads sold, plus Apple's announcement of a new share buyback plan, and an unprecedented dividend payment, seem to have driven Wall Street analysts quite mad.

StreetInsider.com (which keeps track of these things) says no fewer than 11 analysts have hiked price targets on Apple (to as much as $800!) in just the past two days. This morning, FBR Capital made one of the more conservative projections: $675 a share within the year.

With analysts projecting $43.31 a share in profit at Apple this year, that makes for a P/E ratio of less than 16 -- and an even cheaper valuation on free cash flow -- on a stock growing at better than 19% a year. Seems to me, FBR's not just being conservative here. They're actually being too conservative. Apple's a buy, no matter how you slice it.

But it's not the best stock idea out there. To find out what is, click here and get our free report on The Motley Fool's Top Stock for 2012.

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

At the time this article was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company mentioned above.He does, however, have public recommendations available on more than 50 separate companies. Check them out on Motley Fool CAPS, where he goes by the handle "TMFDitty" -- and iscurrently ranked No. 395 out of more than 180,000 CAPS members. The Motley Foolhas adisclosure policy.The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of FedEx and Apple, as well as creating a bull call spread position in Apple.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.

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

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