Coach, Inc. (COH), Freeport-McMoRan Copper & Gold Inc. (FCX): Wednesday’s Top Upgrades and Downgrades

Although priced at “only” 9.6 times earnings, Freeport’s stock looks pricey relative to earnings growth that’s expected to average only 3.5% annually over the next five years. A powerful 4.4% dividend yield should be enough to make up for the slow growth estimate, but it doesn’t. And the reason it doesn’t is that Freeport’s earnings — the number upon which its 9.6 P/E ratio is based — don’t hold up to close examination.

Only about 7% of Freeport’s claimed “earnings,” you see, are backed up by real free cash flow. Put another way, for every $1 Freeport claims to be earning, it actually collects only about $0.07 in real cash-money. This low quality of earnings has me thinking that Freeport looks a lot more like a sell than it does a buy — or even than the “hold” that Argus now says it is. Personally, I think that discretion is the better part of value here, and I’d stay away from Freeport stock.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach and Freeport-McMoRan Copper & Gold.

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

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