Monday’s Top Upgrades (and Downgrades): The Kroger Co. (KR), Masco Corporation (MAS), Olin Corporation (OLN)

Priced at 13 times earnings, Olin Corporation (NYSE:OLN) pays a generous 3.3% dividend yield. But it’s growing earnings at only about 7% per year. Worse, free cash flow at the company is positively anemic. As Olin Corporation (NYSE:OLN) reported earning $150 million in “GAAP” profit last year, the company was only able to back that number up with about $25 million in real cash profit. Factor debt into the picture, and the case can be made for Olin Corporation (NYSE:OLN) not costing “13 times earnings” but rather selling for an enterprise value-to-free cash flow ratio of 100, which is far too much to pay for 7% growth.

Long story short: Monness may have just discovered the attractions of this munitions maker. I think they’re arriving late to the party. Olin’s run is done.

Mighty, mighty Masco?
Speaking of Johnny-come-lately stock picks, RBC Capital gave us an idea this morning that’s easily as bad as Monness’s Olin pick. Predicting that furniture maker Masco Corporation (NYSE:MAS) will “outperform” the stock market over the next 12 months, RBC argued the stock will rocket from $20 to $25 in short order. Personally, I think it’s overpriced already, and I’ll tell you why.

Free cash flow at the company topped $160 million last year, and while that’s certainly a better number than Masco Corporation (NYSE:MAS)’s negative GAAP “earnings” (the company reported losing $114 million last year), it still leaves Masco Corporation (NYSE:MAS) trading for 44 times free cash flow. Its enterprise value-to-FCF is even worse: 59.

Meanwhile, Masco Corporation (NYSE:MAS)’s projected growth rate is a plodding 10%, and its dividend yield a modest 1.5%. Neither number seems to justify an investment in overpriced Masco Corporation (NYSE:MAS). My advice here, if you don’t yet own the stock, is to stay far, far away. If you own the stock already, on the other hand, and are sitting on a 65% profit from the housing rally? Count yourself lucky, and start counting your winnings, as you take them off the table.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of PNC Financial Services (NYSE:PNC).

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

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