Wall Street's Wrong About These Stocks
Wall Street fawns over the companies listed in today's table. So why do our Motley Fool CAPS members disagree? They've tarred these stocks with one- and two-star ratings, showing a lack of faith that the associated companies will outperform the market.
So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?
Wall Street Bullish Sentiment
|Baidu (NAS: BIDU)||**||86%|
|China Gerui Advanced Materials (NAS: CHOP)||**||100%|
|Sprint (NYS: S)||**||92%|
Source: Motley Fool CAPS.
As much as we love our CAPS community, don't sell these companies just because they've garnered low ratings. And don't buy 'em just because Wall Street says to either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.
Still huffing and puffing
Is the social-networking bubble imploding? It's hard to tell with the entire market crashing down around our ears, but Baidu's decision to kill its Twitter-like microblogging service should serve as notice that just because you offer something that's in a hot sector doesn't mean it will succeed.
SINA (NAS: SINA) has developed a far more successful service, Weibo, which is gaining traction much as Twitter has here, so that rival services find it difficult to develop the critical mass necessary to advance to the next level. Renren (NAS: RENN) investors ought to take note.
Yet Baidu may have felt that it was superfluous to keep its Shuoba service going when it is likely pairing up with Facebook soon. But what might be beneficial for Baidu, at least temporarily, may not be of value to Facebook in the long run. Sure, there's a natural affinity between search and social networking, but Baidu hasn't exactly shown itself capable of merging the two successfully. Facebook might have been better off teaming up with SINA or even Tencent's QQ instant-messaging service.
Whatever Baidu's bounce might be when the agreement is approved, I'm willing to wager it will be short-lived. But I'm apparently in the minority. Despite its low two-star rating, the CAPS community does generally think it will outperform the market averages, likely because, as smashego says, its search dominance in China is unparalleled:
The chinese google. Google is the undisputed king of the Internet, but not in china. With such a small user base and multiple failed attempts at gaining thrust with the chinese population the chinese would rather use something more 'in house'. Baidu is just that.
Tell us on the Baidu CAPS page whether you think it needs more than just search to succeed.
A rare breed
When iron ore miner Vale (NYS: VALE) reported earnings recently, it was scorching demand in China that pushed revenues to record levels and earnings 70% higher year over year. Yet the country is inundated with oversupply. Through July, production of crude steel was up more than 10% as steelmakers continued to take on as much iron ore as they could.
That's borne out by cold-rolled steel maker China Gerui Advanced Materials, which recently brought new capacity online and estimates it could hit 75% capacity by the end of the year. Though it claims demand is strong enough to support such levels, other indicators suggest things are about to turn down.
Inflation in China is racing ahead, with consumer prices jumping 6.5% from the year-ago period. They're also up over June's 6.4% rate, though industrial demand is beginning to fall. According to China's National Bureau of Statistics, crude steel output dropped 1% in July from the month before as iron prices soar.
China Gerui passes along to its customers most of the higher iron ore costs it pays, but even with prices for its cold-rolled steel products surging 23% in the quarter, it still missed analyst earnings expectations by a penny. If CAPS member lesboulet1 is right that China Gerui will move in tandem with China's economy (though this CAPS member was expecting growth), investors might want to brace for a fall: "CHOP will follow growth of CHINA ecomony and then some ... well positioned to take advantage of growing Middle Class needing processed steel products"
Is the China bubble about to pop? Let us know on the China Gerui Advanced Materials CAPS page if you think investors should steel themselves for a downgrade.
A certain disconnect
Maybe it's that Verizon (NYS: VZ) looks so much better than competitors that its union workers were willing to go on strike during a recession over being asked to contribute to their health-care costs.
Sprint has no such luxury. After its last earnings report showed that it cost more to acquire customers while it realized lower revenues per customer and witnessed a decline in postpaid subscribers, it took the previously unimaginable step of seemingly cutting loose Clearwire by inking a 15-year agreement with rival LightSquared. That's not to say there's no value left in Sprint. To CAPS member sedonars' way of thinking, it now becomes an acquisition target:
At the very least, it will become a take over target at these prices. At the norm, it will execute a strategy that will payoff in 2-4 years. At best, AT&T will be prevented from buying T-Mobile and S can resume it's overtures for merging.
You can follow along by adding Sprint to your free Fool portfolio tracker, which will bring you all the Foolish news and analysis about its progress.
What's wrong with that?
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.
Sign up today for the completely free service, and tell us which side of the street will be the ultimate winner.
At the time this article was published The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of SINA, Google, and Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here.
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