Monday’s Top Upgrades (and Downgrades): AOL, Inc. (AOL), Fossil, Inc. (FOSL)

In short, the analysts are probably right to be optimistic about AOL’s chances. Once left for dead, this stock has a new lease on life, and, well, like the analyst said: “This story continues to get better.”

Don’t have a cow — but they just upgraded Simpson Manufacturing
In our third and final rating of the day, we find investment banker D.A. Davidson announcing an upgrade for screws and fasteners maker Simpson Manufacturing. It’s not the sexiest of businesses, but in a reviving housing market, it’s a logical place for investors to look in hopes of making some profit. Davidson thinks this $30 stock is worth $37. But honestly, I’m not so sure it’s right — not nearly as certain as I am about the other two ratings we’ve looked at.

Why not? Well, just look at the valuation: Priced at 34.5 times earnings already, Simpson has all the expectations for 15.5% long-term earnings growth priced into its stock already — and more. Meanwhile, what did we see at Simpson in 2012? The company reported its 2012 performance just last week, with revenues rising 9%, but profits falling 16%.

Neither of these numbers, you’ll notice, is anywhere near the average 15.5% gain that Wall Street has been promising us. But even if it were, it would still be hard to see why investors would willingly pay 34 times earnings for that growth rate.

Long story short, Davidson is wrong to be long Simpson. In fact, at today’s prices, the stock might make for an even better short idea.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Fossil and Simpson Manufacturing. The Motley Fool owns shares of Fossil and Microsoft.

The article Monday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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