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, Wall Street's talking up the prospects of pretty much everybody with a ticker symbol -- starting with Altria (NYS: MO) and Amazon.com (NAS: AMZN) but marching all the way up the alphabet to MasterCard (NYS: MA) -- and maybe even beyond.


Smoke 'em if you got 'em
First up: Altria -- the artist formerly known as Philip Morris. Citigroup upgraded the tobacco kingpin this morning, assigning a $39 price target and rating the stock a "buy" -- but for the life of me, I don't know why.

Sure, with its dividend yield topping 5%, Altria's probably a popular stock with dividend investors (and may remain so right up until the moment when Congress pulls the rug out from under its favorable tax treatment). Yet value investors will find little attractive in this stock, which costs nearly 16 times earnings but is expected to grow those earnings at barely 6% per year going forward.

Add in a debt load that exceeds $12 billion net of cash, and free cash flow production that badly lags reported net income, and I find myself much more inclined to go short Altria than long.

Amazon: King of all retailers
In other overoptimistic news, analysts at Cantor Fitzgerald have just initiated coverage of Amazon.com -- and once again, the verdict is "buy" (with a $300 price target). According to Cantor, "management's focus on the customer, by emphasizing selection, price and convenience, and by leveraging technology, positions AMZN as the best play on growth in global online retail."

That said, even Cantor admits that "the stock is not cheap" -- and on this much, at least, I think we can all agree. Priced at a whopping 315 times earnings (yes, you read that right), Amazon isn't just priced for perfection. It's priced for a pipe dream, and anyone who thinks a stock growing at 35% a year is worth a P/E nearly 10 times as much as that has got to be smoking something much stronger than the weed Altria's production managers put out.

 Add in the fact that just yesterday, Wal-Mart (NYS: WMT) joined Target (NYS: TGT) in halting the retail sale of Kindle e-readers at its stores, and Cantor has picked a most peculiar time to endorse a most overvalued stock.

"Master" of the universe
But don't worry, Fools. I've saved the best upgrade for last -- and this one actually stands a chance of working out for investors: MasterCard. This morning, an analyst at Citigroup upgraded MasterCard to "buy," and assigned a $525 price target to the stock. And while I wouldn't go as far as to pay $525 for the company myself, I do believe an argument can be made that this one, at least, is slightly undervalued -- maybe even enough so to make MasterCard worth buying.

Consider: At 27.5 times earnings, but a growth rate of " only" 19%, MasterCard isn't an obvious bargain.  Dig a little deeper, though, and you'll soon find that MasterCard is a whole lot more profitable than meets the eye. Free cash flow for the trailing-12-month period works out to just under $2.8 billion, or more than 31% more cash profit than the company gets to claim as net income under GAAP.

When you pair this with MasterCard's sizable cash hoard -- $5 billion at last report, and without a lick of debt -- what you come up with is an enterprise value-to-free cash flow ratio of just 18.6 times. On a 19% grower, this looks like a fair price to pay for one of the world's truly great companies -- an oligopolist, and one of only a handlful of card companies with the scale to compete for effectively.

Of Wall Street's three headlining upgrades this morning, I think MasterCard is the one best positioned to outperform -- but that's just my opinion. Want to hear a brazen bull thesis for one of the others? Read our new, premium research report on Amazon.com, and decide for yourself if the king of all retail deserves a place in your portfolio.

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

The article This Just In: More Upgrades and Downgrades originally appeared on Fool.com.

Fool contributorRich Smithdoes not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 292 out of more than 180,000 members. The Fool has adisclosure policyThe Motley Fool owns shares of Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com.  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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