This Just In: Upgrades and Downgrades

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: upgrades for Abbott Labs (NYS: ABT) and Capital One (NYS: COF) but a downgrade for Noble Corp. (NYS: NE) .

Olly olly Abbott free!
Abbott Labs is just months away from breaking itself into two parts, a pharmaceuticals giant boasting $18 billion in annual sales, and a medical device company with an even bigger haul -- $22 billion a year. Ahead of the event, two of Wall Street's finest are charging back into the stock, and urging investors to follow. As reports this morning, Deutsche Bank is nudging dividend seekers toward the slower growing pharma half of the company, while suggesting growth-seekers buy into the midteens growth story at Abbott's medical products group.

Granted, as things stand, Abbott looks only average. Valued on its cash earnings, the company costs about 13 times annual free cash flow today, is growing at only 8%, and pays a 3.4% dividend. But Deutsche peer UBS estimates that each half of Abbott will be worth about $34 a share post-break-up. As an added bonus, the pharma business should pay out the lion's share of Abbott's current dividend, yielding perhaps 4.5% post-spinoff. If it's right, UBS' forecast suggests investors can earn a tidy 13% profit over the next year... and boost their dividend yield on the pharma side of things to boot.

One Capital investing idea
Does Abbott sound like a good deal to you? Well, don't click that buy button just yet -- Jefferies & Co. thinks it's got an even better idea: Capital One. The "what's in your wallet" card company costs only a little more than eight times earnings on both a trailing and a forward basis. Jefferies calls this "inexpensive" relative to the 10 times forward multiple at inferior industry player Discover Financial, and the much pricier 12 times multiple at American Express.

Jefferies is right. Eight times earnings is not at all a high price to pay for Capital One's projected 8.7% growth rate. It's even cheaper if you value the company on its free cash flow ($7.1 billion, or more than twice reported net income). Heck, Capital One even pays its shareholders a small dividend. Fact is, I like Capital One so much I might just buy some for myself -- after the Fool's mandatory three-day cooling-off period expires, of course.

For now, I'll just content myself with a "virtual buy" and rate the stock an outperform on CAPS. Will I regret putting this stock in my wallet? Follow along and find out.

Noble Corp.?
And now, with a heavy heart -- and my apologies for ending on a down note -- we turn to the big downgrade of the day: Noble Corp. While losing rather badly to the market over the past 12 months, Noble has enjoyed a bit of a bounce-back in the early days of 2012. So far this year, the shares have expanded in value by nearly one-third, but that's as good as it gets, says master investor Standpoint Research, which this morning pulled its buy rating on the stock, and downgraded to hold.

Far be it for me to disagree with Standpoint, an analyst that has outperformed more than 96% of its peers over the years, especially when the numbers say it's right.

Last week, I shared with you a few reservations I had regarding a lesser analyst's decision to upgrade shares of Noble rival Transocean (NYS: RIG) . While pegged for industry-leading growth rates, Transocean looked only fairly valued relative to its current year earnings. Noble can't even say that much. Burning cash where Transocean is earning it, and expected to grow at barely half the pace Transocean will set over the next five years, Noble looks like a laggard.

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

At the time thisarticle was published 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 more than 50 separate companies. Check them out on Motley Fool CAPS, where he goes by the handle "TMFDitty" -- and is currently ranked No. 399 out of more than 180,000 CAPS members. The Motley Fool has a disclosure policy.The Motley Fool owns shares of Transocean and Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Abbott Laboratories and writing a covered strangle position in American Express.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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