Caterpillar Inc. (CAT), Angie’s List Inc (ANGI) Among Today’s Top Upgrades and Downgrades

On the surface, Caterpillar stock still looks cheap, with a P/E ratio of just 10, a 14% projected long-term growth rate, and a sizable dividend yield of 2.6%. But it’s what’s underneath the hood that worries me. At $1.2 billion in FCF, Caterpillar Inc. (NYSE:CAT) sells for a hefty 46 times the amount of cash it’s able to produce in a year. And if that valuation isn’t quite as bad as it looked last week, well, it still isn’t good.

Angie’s on Wall Street’s shopping list
Finally, let’s end today on a “good” note, with a few words on investment banker Needham’s higher price target on Angie’s List Inc (NASDAQ:ANGI).

On Tuesday, Needham upped its estimate for the value of this buy-rated stock, saying it’s worth 20% more than the analyst previously thought — $24 a share. I disagree.

Deeply unprofitable, burning cash (more than $43 million in negative free cash flow for the past year), and selling for more than 100 times the earnings it might (or might not) earn next year, Angie’s List continues to look speculative to me. Although it’s true analysts in general think this is a great growth story, and predict 46% annualized profits growth over the next five years, it behooves investors to ask: “Growth of what profits? How can you grow a negative number?” (And even if you can, is a bigger negative number really a good thing?)

Fact is, even if you value Angie’s on one of the few numbers it’s got that’s actually positive — its revenue — the stock’s carrying a 7.4 price-to-sales ratio, which is four times the average valuation in the Internet software and services industry. Long story short, placing a buy rating on Angie’s List Inc (NASDAQ:ANGI) looks like a speculative wager at best, and a foolhardy bet at worst.

Motley Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs.

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.