Tuesday's Top Upgrades (and Downgrades)

Updated

Stocks go up, stocks go down -- and so do analysts' opinions of them. This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, it's buy ratings on tap for Express (NAS: EXPR) and Oracle (NAS: ORCL) , while Monster Beverage (NAS: MNST) gets stuck with the dregs of a downgrade.

Express train to profits?
Little-known analyst CL King starts us off this morning with an initiation at buy for 20-somethings retailer Express -- not that you'd know it from the stock's flatlined reaction. According to CL, Express at $18 is at least 20% undervalued, and likely to hit $22 within a year.

That's the good news. Here's the better news: CL is probably being conservative. Priced at a measly 11 times earnings, and with free cash flow backing up almost every dollar it reports as net income, Express looks like quite the bargain at consensus growth rates exceeding 18% per year. With upside potential of 60% or greater -- about three times what CL projects -- this is one stock bargain hunters should flock to.


The omens look good for Oracle
Likewise with Credit Agricole's report this morning, in which the French megabanker executed a clean 180 on its opinion of Oracle. No sooner had Oracle proven its detractors wrong with a blowout fourth-quarter earnings release, than Agricole recanted its pessimism and joined the optimists' camp -- and rightly so.

With $10 billion in trailing profit, and free cash flow that exceeds reported earnings by at least 30%, Oracle's anything but expensive. The P/E on this one remains below 14, while on a price-to-free-cash-flow basis the stock is downright cheap at a P/FCF of less than 11. And of course, all of this is before you factor in the company's $15 billion cash balance, which makes Oracle cheaper still.

Long story short, if Oracle can just keep up the 12% pace of earnings growth that Wall Street has it pegged for, investors should do just fine by following Credit Agricole's advice -- and buying Oracle.

Monster is scary
And finally -- and with apologies for ending on a down note -- we turn to today's featured downgrade, also courtesy of Credit Agricole. This time, it's Monster Beverage getting the cut, as Agricole warns the drink maker's shares have come up too far, too fast. It could be right.

Indeed, Monster shares have more than doubled over the past year, and at today's prices, fetch nearly 47 times trailing earnings apiece. That's a high hurdle to leap for anyone expecting Monster to keep on outperforming the market, and a high valuation for Monster's 15% long-term earnings growth rate to support.

Mind you, the company's not all bad -- far from it. With free cash flow more than backing up reported net income, Monster is a quality company with good quality of earnings. Its only problem, really, is that it costs too darn much. Investors would probably be better off buying something with a bit less fizz. Coca-Cola (NYS: KO) , for example, is growing only half as fast as Monster, but its P/E is less than half Monster's price, and Coke also pays a dividend (Monster doesn't).

Do we even need to say it? Oh, all right: Forget overpriced Monster. Instead, have a Coke and a smile.

Fool contributorRich Smithholds no position in any company mentioned. The Motley Fool owns shares of Coca-Cola and Oracle.Motley Fool newsletter serviceshave recommended buying shares of Monster Beverage and Coca-Cola.

At the time thisarticle was published

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Advertisement