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 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, as markets plunge, Wall Street is looking past the gloom and talking up prospects at a whole raft of stocks -- Las Vegas Sands (NYS: LVS) , Cirrus Logic (NAS: CRUS) , and Mosaic (NYS: MOS) , to name just a few.

Are you feeling lucky?
Despite being down for the year, shareholders at Las Vegas Sands are enjoying a rare winning streak today, having just been dealt a winning hand by the analysts at Imperial Capital. According to the analyst, Sands shares that as recently as yesterday could have been bought for $42 will fetch $62 within a year. That's close to a 50% profit, and would be wonderful news if it proves out -- but will it?

I have to say: The odds don't look good. At 25 times earnings, Sands actually seems to be selling for a premium to the 20% long-term growth rate the Wall Street assigns the stock. Free cash flow at the company, while much stronger than in years past, still lags reported net income, which makes it hard to endorse the stock based on its cash flows.

Perhaps most instructive -- Sands shares sell for a premium to its competitors, offering a P/E ratio eight points pricier than the average stock in the casino industry, and a P/S ratio more than three times as high as the average. Overpriced today, I think the chances that investors will overpay by 50% more a year from now look vanishingly slim.

Well? Do you?
Bad as the odds look at Las Vegas Sands, investors who follow the advice of another analyst -- Feltl & Co. this time -- look even more likely to get burned. Feltl this morning initiated coverage of two semiconductor stocks, Cirrus and EZchip -- both of which it thinks you should buy. But why?

At 31 times earnings today, up nearly three times in value over the past year, Cirrus carries an exorbitant valuation that even its 20% growth rate will struggle to support. (Free cash flow at the company isn't anything to write home about, either -- less than a third of reported earnings.)

Feltl's even more bullish on EZchip ... and even more wrong with this one. While in contrast to Cirrus, EZchip boasts more free cash flow than it gets to characterize as "net income" under GAAP, the stock's pretty expensive no matter how you look at it. Valued on free cash, EZ costs a heady 44 times multiples. Valued on earnings, it's a whopping 73 times earnings. Neither one of these numbers looks particularly attractive in light of consensus expectations for 12% long-term growth. Accordingly, both of Feltl's recs fail the logic test.

And speaking of logic ...
Another pair of picks out of Wall Street -- from Stifel Nicolaus, to be precise -- appear to suffer from a logical mix-up. Resuming coverage of the fertilizer industry this morning, Stifel tagged Mosaic a "buy," but called CF Industries only a "hold." It's about a quarter-right about that. One of these companies is worth buying, but it's not the one Stifel says it is, and the one Stifel's most lackadaisical about is the stock you should probably own.

Let's do Mosaic first: With a P/E ratio of 13, the stock's buy-thesis starts off strong -- but is quickly brought up short. The one-year Great Drought of 2012 notwithstanding, long-term growth estimates for Mosaic still look slim at just 8%. Plus, the company generates only about 60% as much free cash flow as it claims to be "earning" in GAAP profits. So arguably, the stock's even more expensive than it looks, and far from cheap enough to consider buying.

In contrast, CF continues to look like a bargain. Its earnings valuation on earnings of 8 is even cheaper when viewed from the perspective of CF's more copious free cash flow production. Plus, CF's growth rate in excess of 10% leaves Mosaic in the dust. Alone in the fertilizer sector, CF reigns supreme as the only value stock worthy of real consideration as a place to put your investing dollars.

Whose advice should you take -- Rich's, or that of "professional" analysts like Imperial, Feltl, and Stifel?Check out Rich's track record on Motley Fool CAPS, andcompare it with theirs. Decide for yourself whom to believe.

The article This Just In: More Upgrades and Downgrades originally appeared on

Fool contributorRich Smithowns no shares of, nor is he short, any stock named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 283 out of more than 180,000 members. The Motley Fool owns shares of Cirrus Logic and CF Industries Holdings. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool has adisclosure policy.

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