Four High-Profile Upgrades Worth Noting

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sometimes an analyst issues a revised outlook or changes his/her rating but does not inform investors of the reasons behind the call. These typically move stocks on the call alone; the price target and outlook. However, some analysts provide detailed reasons behind the call; these are the outlooks that should be noted and used as part of your fundamental research. Therefore, I am taking a look at such outlooks and determining the best way to utilize the information.

Company

Ticker

Firm

Call

Netflix

(NASDAQ: NFLX)

Janney Capital

Buy

Research in Motion

(NASDAQ: BBRY)

Jefferies

Buy

McDonald’s

(NYSE: MCD)

Wells Fargo

Note

Las Vegas Sands

(NYSE: LVS)

Wells Fargo

Outperform

Netflix

Netflix traded back above $100 to post gains of more than 2.5% after Janney Capital upgraded the stock to “Buy” due to fundamental catalysts. The stock has been volatile over the last few weeks due to concerns regarding the actions of famed institutional investors Carl Icahn and David Einhorn; some have wondered if either will sell their positions. However, Janney believes that the Disney deal and a pending deal could help improve Netflix’s earnings.

The firm notes that the company’s CDN platform combined with other catalysts could create a short squeeze in the near future. Although Netflix is much cheaper today than it was at $300, the stock still trades with a price/sales of 1.53 and is expected to lose half of its net income over the next year. Therefore, the decision as to whether or not buy NFLX should be due to beliefs on whether or not the company can grow in emerging markets, and over the long-term. Because it’s fair to suggest that all previous deals and upcoming deals might be priced into its stock.

Research in Motion

Research in Motion continues to add to its three-month 100% gains as investors expect a successful launch of the BlackBerry 10. So far, there is no fundamental reason to believe the company’s new operating system will be successful, yet analysts continue to jump onboard, including Jefferies’ Peter Misek. Misek offers yet another speculative outlook, with a $56 price target, saying the new BB10 will enable corporate email on iOS and Android devices. The analyst believes this feature will attract corporations to the devices and lead the stock back to its glory years.

Personally, I believe all upside is priced into the stock and see no reason to buy at these levels. This is a company that is still seeing a near 50% decline in fundamentals, and despite its gains, continued to rally another 6% on Friday following the upgrade.

McDonald’s

In light of weak Q4 sales data from restaurant companies, Wells Fargo issued a bullish note saying that McDonald’s will report better than anticipated Q4 earnings. The firm also said that it believes same-store sales will rise in Q2 and Q3 as prices stabilize. The firm is among the first to turn bullish on the industry, as most have been quite bearish following Chipotle and Yum! Brands’ weak guidance. In terms of valuation, McDonald’s is much more attractive than it was back in January of 2012, but in my opinion, if McDonald’s impresses with its Q4 results it will be due to lower expectations rather than a pickup in demand.

Las Vegas Sands

The U.S. casino market has been volatile at best, yet analysts continue to be bullish on the industry’s outlook due to global growth. Specifically, it’s Macau that is seeing the greatest growth, and according to Wells Fargo, Las Vegas Sands is the best positioned with strong leverage to outperform the sector. The firm is giving the stock a fair valuation between $60 and $70, which is a massive premium over its current price at $52.25. As an investor, LVS does look attractive, as being undervalued due to the company properly executing its growth plan ahead of its competition. Therefore, it may be a stock to consider.  

Conclusion

A firm that offers reasons for their call is taken more seriously because it provides substance for their reasons. However, like all analyst calls, there are always two sides to a story; and for every bullish call there is someone else who is bearish. Therefore, use this information as part of your research, but it shouldn't dictate your investment decision. 


BrianNichols has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Netflix. The Motley Fool owns shares of McDonald's and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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