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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

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!