On Friday we saw several stock-moving upgrades in preparation of a long week of earnings; here are four that really caught my eye. These are upgrades that I would definitely ignore.
The best of the worst
After a 64% one-year loss, Molycorp Inc (NYSE:MCP) has gained 22% over the last month, and much of those gains have been caused by analyst upgrades. Byron Capital likes Molycorp Inc (NYSE:MCP); his “Strong Buy” rating helped to push shares higher by over 2.6% on Friday. The firm calls Molycorp Inc (NYSE:MCP) the best positioned to reap the benefits of reliable rare earth minerals outside China.
First off, I don’t consider the best of the bad to be good. Secondly, I am not sure that demand is present for Molycorp Inc (NYSE:MCP) to capitalize on this reliable source that Byron Capital notes. This is a company that has been crushed because rare earth material prices have fallen, and I see no reason to believe that prices will stabilize. Hence, while Molycorp Inc (NYSE:MCP) could possibly be at the bottom of its trend, I don’t think there are enough catalysts present to call it a “Strong Buy.”
Not buying the idea of growth
After three years of declining revenue, is Xilinx, Inc. (NASDAQ:XLNX) finally entering an extended period of above industry growth? According to Citigroup, the semiconductor company is entering this period, and ramped 4G spending in China is the primary catalyst.
Xilinx, Inc. (NASDAQ:XLNX) has several products that are used in mobile infrastructure gear. My problem is that as of late we haven’t seen too many China-based predictions end favorably. China is a country with slowed growth, and at five times sales, I simply can not speculate that Xilinx, Inc. (NASDAQ:XLNX) will finally begin to produce growth – not when its failed to grow during periods of rapid Chinese expansion.
Simply ridiculous
Personally, I know investors who won’t touch a stock trading at 36 times earnings; therefore, at 36.5 times SALES, Workday Inc (NYSE:WDAY) is expected to have significant growth potential. Perhaps I don’t understand the valuing metric for this company, because with an operating margin of negative 38.6% and decelerating growth I can’t fathom how an analyst could possibly predict further upside. In my opinion, this is the quintessential example of a bad upgrade.
Great company, just a little pricey
Just to be clear, when Regeneron Pharmaceuticals Inc (NASDAQ:REGN) was trading below $220 I was writing, tweeting, and screaming to buy the stock. But now, at $260, I think it’s getting a bit expensive. Look, I love the long-term potential of this company; I think that once its large pipeline develops that it will trade considerably higher; but at 15 times sales, I think there are better short-term opportunities elsewhere. But once the company’s rheumatoid arthritis drug Sarlimab is approved, my outlook is likely to change.
Final thoughts
While I disagree with all of these upgrades, I feel more strongly about the call on Workday Inc (NYSE:WDAY).
To me, Oppenheimer’s Workday upgrade is an in the moment call, as I think it is somewhat irresponsible for a firm to be so bullish on a company with this kind of valuation. Historically, price/sales ratios over 35 are not sustainable, but to say “Outperform,” the firm is suggesting that the stock will outperform the overall market. In my opinion, this is foolish.
While I don’t agree with Byron Capital’s reasons, Molycorp Inc (NYSE:MCP) could very well be at the bottom of its freefall. As a long-term investor, I really like Regeneron Pharmaceuticals Inc (NASDAQ:REGN), but don’t consider it a “buy” right now based on current products. Therefore, this leaves Workday Inc (NYSE:WDAY), which I think is by far the worst call of the day.
Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article 4 Noteworthy Upgrades That You Should Question originally appeared on Fool.com is written by Brian Nichols.
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