Monday's Top Upgrades (and Downgrades)
Stocks go up, stocks go down -- and so do analysts' opinions of them. This series looks at which upgrades and downgrades make sense, and which ones investors should act on. Today we'll examine new buy ratings for Youku (NAS: YOKU) -- China's answer to YouTube -- and also Ariad Pharmaceuticals (NAS: ARIA) , a pioneer in cancer research. Rounding out the list, we'll check in on the just-reported downgrade at Hudson City Bancorp (NAS: HCBK) .
Cuckoo for Youku?
After losing nearly half its market cap over the past year, Youku is a company with very few friends at the moment. It did gain one new fan, however, when this morning analysts at Maxim Group upgraded the shares to "buy."
As you may recall, Maxim did a similar upgrade on Youku three months ago, when it removed a "sell" rating on the stock and upgraded to "hold." At the time, the analyst was predicting gains in market share and an improving outlook as China's nascent Internet industry "consolidates." Today, with Q1 earnings expected to arrive on Thursday, Maxim appears to believe it's time to buy the stock in hopes it will pop Friday. Is Maxim right about that?
Anything's possible. Indeed, with its history of losses (Youku has never earned a full-year profit), and dismal prospects for the future (analysts project that even if Youku turns a profit next year, it will be trading at a P/E ratio of 236), it's hard to imagine what Youku could say Thursday that would qualify as "bad" news. Things already look pretty grim. Given this situation, even modestly positive results could give the stock a pop.
And speaking of pops ...
Profitless biotech Ariad Pharma enjoyed a modest 5% gain last week despite reporting a deepening Q1 loss on higher R&D spending. The company's $0.35-per-share loss was a full dime worse than analysts had been expecting. Regardless, investors are forgiving the miss in hopes it will become irrelevant when Ariad's ponatinib leukemia treatment hits the market, and this morning they got a confidence boost when Summer Street Research upped its price target on Ariad by 31%, from $16 to $21 a share.
Granted, when speaking of biotechs, investors should probably be thinking more along the lines of if ponatinib gets FDA approval than when -- but hope springs eternal. The good news here is that with more than $280 million cash in the bank, and a cash-burn rate of less than $70 million (considerably lower than reported GAAP losses), Ariad has plenty of time to get this right and get its drug to market.
Assuming it works.
JPMorgan Chase isn't the only bank in trouble
Finally, shareholders of New Jersey-based Hudson City Bancorp had a bad day this morning, as analysts from Compass Point downgraded the stock to "hold" and cut their price target to $7 a share. As StreetInsider.com explains, though, this has less to do with the troubles JPMorgan Chase ran into over the weekend and more with a 10-Q filing that Hudson City just released, which reveals that the Federal Reserve wants the bank to "obtain approval before issuing debt with a maturity greater than one year."
Compass points out that Hudson probably has received or will receive this approval but warns that the Fed's stricture "almost completely impair[s]" the banker's ability to offer fixed-rate mortgages, imperiling a valuable revenue stream. Given that most analysts believe Hudson is already likely to experience declining earnings over the next five years, that's not good news. It could put the banker's 4.9% dividend yield in doubt and suggests that even at just 12 times forward earnings, this stock's not nearly as cheap as it looks.
Fool contributorRich Smithholds no position in any company mentioned. The Motley Fool owns shares of JPMorgan Chase and has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
At the time this article was published
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.