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Intel Corporation (INTC), Freeport-McMoRan Copper & Gold Inc. (FCX): Monday’s Top Upgrades (and Downgrades)

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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 a pair of new buy ratings for large-caps Intel Corporation (NASDAQ:INTC) and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). But the news isn’t all good.

Intel Corporation (NASDAQ:INTC)

HomeAway has termites
Things were looking pretty good for HomeAway, Inc. (NASDAQ:AWAY) investors as last week drew to a close. Analysts at investment bank Piper Jaffray had just upgraded the stock to overweight on expectations of improved pricing growth in 2014. But the enthusiasm was short-lived, as Monday dawns with a new rating for HomeAway: Sell.

The analyst you can thank for this downbeat assessment — and the 7% drop in HomeAway’s share price — is Monness, Crespi & Hardt, which initiated coverage of HomeAway this morning with a sell rating and a $24 price target. But is it deserved?

It depends on how you look at it. On the one hand, yes, HomeAway, Inc. (NASDAQ:AWAY)’s trailing P/E ratio of 135 does look a bit steep, even with 32% projected profits growth to back it up. On the other hand, though, the “GAAP” financials that go into the P/E equation don’t really tell the whole story at HomeAway.

Last year, for example, this company reported earning less than $18 million GAAP profit. However, its actual cash profits — its free cash flow — amounted to a whopping $82.5 million. This gives HomeAway stock a price-to-free-cash-flow ratio of only 29, and on 32% projected growth, that seems cheap enough to me to make HomeAway deserving of a buy rating — not a sell.

Freeport looks shiny
Happier news greeted investors in copper, gold, and oil explorer Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) this morning. Here, we saw Brit banker Barclays resume coverage of the stock with an overweight rating and a $40 price target that promises significant upside to today’s $31 share price.

And yet, there’s something strange about this rating. The news out of Freeport today is that its Indonesian operations at the world’s second-largest copper mine will be shut down for three months as the local government investigates accidents at the site. This hardly seems like good news for Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), and it could morph into even worse news if the government finds the company hasn’t been taking due care of its workers at the mine, and levies fines as a result. Meanwhile, Freeport’s stock price doesn’t look all that attractive even as-is.

Freeport’s P/E of 10 doesn’t sound too bad, until you realize that earnings at the company appear close to peaking, and future annual earnings growth is expected to average only 3%. Meanwhile, free cash flow at the firm is anemic, with the firm generating only $212 million in real cash profits — far short of the $2.9 billion in reported GAAP earnings. Indeed, valued on free cash, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) now boasts a P/FCF ratio of 140 — higher even than the P/E ratio that scared Monness away from HomeAway.

Always end on a bright note
And finally, we come to Intel Corporation (NASDAQ:INTC), subject of an upgrade to outperform from FBR Capital today. Although FBR acknowledges that Intel faces “headwinds” in its core personal computing market, the analyst nonetheless sees a bright future for the world’s biggest semiconductor firm.

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