Intel Corporation (INTC), ARM Holdings plc (ADR) (ARMH), Staples, Inc. (SPLS): Friday’s Top Upgrades (and Downgrades)

Page 1 of 2

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature upgrades for a pair of semiconductor firms, Intel Corporation (NASDAQ:INTC) and ARM Holdings plc (ADR) (NASDAQ:ARMH). But the news isn’t all good.

Attaching a neutral rating to Staples

Early this morning, investment megabanker J.P. Morgan announced it is pulling its overweight rating on Staples, Inc. (NASDAQ:SPLS), and downgrading the shares to neutral on fears of “secular pressures” hurting the office supply retail market. Staples shares currently cost a bit less than $14, and while J.P. thinks they’re actually worth closer to $15, nonetheless, the difference between price and value here doesn’t seem to be big enough to keep the banker interested in buying Staples, Inc. (NASDAQ:SPLS) shares.

Staples, Inc. (NASDAQ:SPLS)

But is J.P. overlooking an opportunity?

I think so, yes. Consider: With negative GAAP earnings today, and a fair amount of debt on its books, there’s plenty of reason to be leery of Staples, Inc. (NASDAQ:SPLS) shares today — and I don’t blame J.P. a bit for being nervous. That said, Staples still has the nation’s No. 2 e-commerce website. It’s generating plenty of free cash flow ($963 million over the past year), and its stock costs less than 10 times this FCF number. The company pays a pretty generous dividend yield for a retailer — 3.4% — and is currently being priced like its 4% long-term projected growth rate is a given.

My hunch: If Staples, Inc. (NASDAQ:SPLS) can find a way to grow even a little bit better than that — by stealing share from Office Depot Inc (NYSE:ODP)-Max as they’re busy consummating their merger, perhaps, or by taking advantage of Amazon.com, Inc. (NASDAQ:AMZN)‘s increasing subjection to state sales tax laws to compete more strongly with it on price — Staples shares could turn out to be a steal at today’s prices.

Time to give ARM a hand?

Turning now to the day’s upgrades, mobile chipmaker ARM Holdings plc (ADR) (NASDAQ:ARMH) scored an upgrade to “buy” at the hands of Deutsche Bank.

Noting that ARM Holdings plc (ADR) (NASDAQ:ARMH) shares have fallen 20% since their May 2013 peak on worries of “market share loss to Intel Corporation (NASDAQ:INTC) following its new Silvermont mobile architecture launch and winning a tablet design with Samsung” and fears of “slowing high-end smartphone growth” overall, Deutsche is calling a bottom on the stock today. Quoted on StreetInsider.com this morning, the German banker suggested that “even if Intel Corporation (NASDAQ:INTC) gains 10% unit share by 2016,” and even if “a high-end slowdown” does materialize, investor worries over ARM’s valuation are still overdone.

I disagree. Priced north of 80 times earnings, and selling for nearly 63 times trailing free cash flow, ARM Holdings plc (ADR) (NASDAQ:ARMH) needs to grow its profits at least three times faster than the 22% annual growth rate that Wall Street is projecting for it in order to be fairly priced. Long story short, Deutsche is right that ARM remains a great business, with a great future — but the stock simply costs too much to be worth buying today.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!