This Just In: More 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 several high-profile ratings moves on Wall Street: New buy ratings for PotashCorp (NYS: POT) and Agrium (NYS: AGU) , counterweighted by downgrades for AT&T (NYS: T) and Verizon (NYS: VZ) . Let's dive right in.

Mm-mm! What's that delicious smell?
Fertilizer. And believe it or not, it smells downright tasty to the analysts at Stifel Nicolaus, who this morning announced new buy ratings for fertilizer companies Agrium and Potash of Saskatchewan. Stifel sees Potash shares hitting $56 within a year and predicts Agrium will fetch nearly twice that at $105 a stub.

You can readily see why Stifel might like these stocks. At just 13 times trailing earnings, Potash looks like a bargain, relative to the 14% long-term growth rate that Wall Street has it pegged for. Agrium's even cheaper at less than 10 times earnings (although its growth rate of 7% is slower). One cause for concern, however, is the fact that both firms are currently generating free cash flow at less than half the rate they claim to be "earning" net profits. A similar tendency to report low quality of earnings was evidenced at rival fertilizer producer Mosaic (NYS: MOS) , and just yesterday Mosaic wound up reporting earnings that fell far short of Street expectations -- just $0.64 per share, when analysts had expected $0.74.

In reporting earnings, Mosaic tried to reassure investors that it still expects to make "near-record global shipments in 2012 and a very strong North American spring season." But for now it seems likely the market will be in "trust, but verify" mode for these stocks.

Rally -- disconnected
In other "shoot first, ask questions later" news, yesterday we discussed the slew of telecom ratings that Canaccord handed out when it launched a massive 15-stock initiation spree earlier this week. Overall and across the industry, Canaccord was decidedly pessimistic. Now it seems they're not the only ones questioning the existence of value in telecom.

This morning RW Baird confirmed that it's following Canaccord's lead and downgrading both AT&T and archrival Verizon. According to, the analyst's concerns basically boil down to three things. First, smartphone subscribers are using ever-increasing amounts of data. Second, all this data needs to travel through spectrum, and the companies are going to have to pay through the nose to acquire "fresh spectrum" if they're to keep customers happy. Third and finally, customers aren't rushing to help the companies out with the extra costs. Instead, sales growth is "slowing," and in consequence, free cash flow generated by telecom providers has basically been stagnant since 2007.

Digging a bit into the numbers, it actually looks to me like Verizon has increased its free cash flow over the time period Baird cites -- a big reason I've endorsed the stock on Motley Fool CAPS (although I'm having second thoughts about that). Meanwhile, the analyst is right that growth hasn't been terribly impressive even at Verizon, while AT&T's free cash is actually in decline.

Foolish takeaway
In short, I'm not yet convinced that Verizon is a dog -- at least, not enough to pull the plug on my "outperform" rating on the stock just yet. But I am sufficiently worried that I'll be re-examining my buy thesis (at my leisure, and not in response to any judgment from Wall Street). Keep your eye on this column over the next few weeks. Once I decide that Verizon is no longer worth owning (or will I?), you'll be the first to know.

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

At the time thisarticle was published Fool contributorRich Smithdoes not own shares of any company named 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. 362 out of more than 180,000 CAPS members. The Motley Foolhas adisclosure policy.Motley Fool newsletter serviceshave recommended buying shares of Potash of Saskatchewan.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors.

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