MAKO Surgical Corp. (MAKO), Lions Gate Entertainment Corp. (USA) (LGF) Among Tuesday’s Top Upgrades & Downgrades

My one word of advice here would be to keep an eye on debt. Lions Gate’s debt load currently exceeds its cash reserves by roughly $1.3 billion. I see the stock as fairly priced even factoring this debt into the equation — if the growth rate holds up. If Lions Gate stumbles on growth, however, or fails to keep debt levels in check, well, either one of those developments could prove a thorn in the paw of Lions Gate investors.

Lufkin’s leap is over
Finally, and filed in the in memoriam category of today’s column, we turn to Lufkin Industries, Inc. (NASDAQ:LUFK) Industries. As you’ve probably heard by now, General Electric Company (NYSE:GE) announced yesterday that it has agreed to buy Lufkin for $88.50 per share in furtherance of its move into the energy industry.

Investors may quibble with the stock price, and the 36-plus times earnings ratio that General Electric Company (NYSE:GE) is shelling out for its new acquisition. Indeed, whether you value the deal on price-to-sales, price-to-book, or price-to-earnings, GE is paying a pretty penny. The one thing that no one can dispute, though, is that Lufkin shareholders have made out like bandits on this deal, scoring a 38% one-day profit thanks to GE’s largesse.

Tempting a target as Lufkin may be, however, what with its projected 24% annual earnings growth rate and all, it’s hard to see a bidding war breaking out here at these high prices. It’s hard to see a rival bidder emerging, and failing that, it’s hard to see how Lufkin shares could have any more room to run after this week’s price spike. Accordingly, Howard Weil this morning removed its “outperform” rating from the stock and downgraded Lufkin to “sector perform.”

Me, I’ll go a step further than that. I’ll say that with the stock trading within just two bits of GE’s proposed purchase price, it’s time to take your winnings, declare victory, and sell Lufkin.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends MAKO Surgical. The Motley Fool owns shares of General Electric Company.

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

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