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." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.)

So 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: an upgrade for Annaly Capital (NYS: NLY) , a price hike for MasterCard (NYS: MA) , and a rare downgrade for Apple (NAS: AAPL) .

Huh? Apple can go down, too?
Let's jump right in with the big news of the day: Someone doesn't like Apple. It's amazing, I know, but this morning, someone finally called shenanigans on Apple's business model of hawking overpriced smartphones with use of financial subsidies from Verizon (NYS: VZ) and AT&T (NYS: T) .

Arguing that there's a limit to how long the telecom majors can afford to see iPhones for $199 and eat the rest of the cost themselves, analyst BTIG argued this morning that Apple's partners will try to apply brakes to the company's endless issuances of "new" iPhone models going forward: "We expect post-paid wireless operators to remain firm in their plan to stunt the pace of phone upgrades in 2012, and we expect to see some initial evidence of their success in the current quarter."

Weakened support from its partners, argues the analyst, may force Apple to cut the prices (and its own profit margins) on its phones, hurting profit growth going forward. The analyst believes Apple is still worth owning, mind you, but BTIG is downgrading the stock from "buy" to "hold" -- and it may be right. At 18 times earnings, Apple still looks cheap based on consensus estimates for 21% annual long-term growth. Slice a few points off that growth rate, though, and Apple isn't quite the bargain that it appears.

Ready for some good news now?
Last week, we took a look at the optimistic price target that analysts at Oppenheimer had just applied to MasterCard. This morning, though, even Oppy's hoped-for 9% profit is looking passe. In a note out of Stifel Nicolaus, the ace stock-picker argued that increased use of credit cards by consumers could help lift MasterCard shares all the way to $505 -- a 15% gain from today's share price.

Don't believe it. As I explained last week, at 29 times earnings but an expected growth rate of "only" 19%, MasterCard shares were already looking pretty pricey. Stifel's new target, however, posits a valuation of 34 times the company's trailing earnings, for a PEG ratio of nearly 1.8.

MasterCard's a great company, folks. I'm not arguing otherwise. But there are limits to greatness (see Apple, above), and limits to the price you should pay for it. With its pie-in-the-sky forecast of $500-plus per share, Stifel just set the radar detector to buzzing. My advice: Be happy with the stock's 65% gain over the past 12 months. Don't make Stifel's mistake of getting too greedy.

And speaking of greedy ...
Annaly Capital Management has always been a favorite stock among income investors, and with a dividend yield now exceeding 14%, it's not hard to see why. This morning, we learned from that an analyst at Compass Point is urging investors to snap up that dividend based on "three things." First, Compass argues that interest rates are moving higher in 2013. Combined with data suggesting that "prepays" of mortgages will "not continue higher on the same trajectory as in February," Compass believes this removes some risk of lower profits at Annaly.

But it's the third point that's the real kicker. With Annaly shares down 10% over the past year, Compass argues that the stock is now trading "low relative to historical trading multiples." And the fact that this low stock price is helping to hold up the dividend yield probably doesn't hurt.

Regardless, 42.5 times earnings seems like a lot to be paying for even a 14% dividend. Even if Annaly grows earnings as expected, consensus numbers suggest that the best investors can hope for is 3% profits growth at the company going forward. Put it all together, and the stock just doesn't look cheap to me. Maybe that's why even as Compass "upgraded" the shares to buy, it stood pat on its price target and predicted that Annaly shares will fetch only $17 a share a year from now -- flat against their price of October 2007, and dead money for nearly five years running.

Sure, the beefy dividend yield takes some of the sting out of that ... but there are better ways to earn dividends, and stocks with better chances for capital appreciation to boot. Want to find out what they are? Read the Fool's new, free report: "Secure Your Future With 9 Rock-Solid Dividend Stocks."

Whose advice should you take -- Rich's, or that of "professional" analysts such as BTIG, Stifel Nicolaus, and Compass Point? Check out Rich's track record on Motley Fool CAPS, and compare it with 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 handleTMFDitty -- and iscurrently ranked No. 375 out of more than 180,000 CAPS members. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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