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 heavy industrialists Manitowoc Company, Inc. (NYSE:MTW) and Terex Corporation (NYSE:TEX). But the news isn’t all good, so before we get to those, let’s find out first why one analyst thinks…
Wells Fargo & Co (NYSE:WFC) is all dried up
Markets are up marginally this morning, but shareholders in one company — Wells Fargo & Co (NYSE:WFC) — aren’t sharing in the relief rally. So why are investors shunning Warren Buffett’s favorite bank?
The primary reason appears to be a downgrade from Atlantic Equities. You see, the U.K.-based stock research firm cut Wells Fargo & Co (NYSE:WFC) to underweight this morning, from its prior rating of neutral. But the good news here is: The downgrade doesn’t look justified.
In addition to Buffett’s seal of approval, you see, there are concrete, objective reasons to believe that Wells Fargo & Co (NYSE:WFC) isn’t deserving of an underweight rating — the functional equivalent of a sell. Priced at only 11.5 times earnings, Wells stock is cheaper than that of rivals Bank of America Corp (NYSE:BAC) or Citigroup Inc (NYSE:C), yet it pays a 2.9% dividend yield, orders of magnitude greater than what Bank of America Corp (NYSE:BAC) or Citigroup Inc (NYSE:C) pay.
Wells Fargo & Co (NYSE:WFC) is also growing steadily, posting 16.7% compound earnings growth over the last five years, and projected to keep growing at better than 8% (perhaps much better, if history is any guide) over the next five years. While not exactly cheap, to my Foolish eye the stock looks appropriately priced for its combined total return ratio. In short, the stock may only be a hold, but it’s definitely not a sell — or an “underweight”, either.
Next up, shifting gears from banking to heavy industry, is crane-maker Manitowoc Company, Inc. (NYSE:MTW). Ace investment banker Stifel Nicolaus just initiated coverage of the stock with a buy rating and a $25 price target — and they just might be right about that.
Sure, on the one hand, Manitowoc Company, Inc. (NYSE:MTW) shares look kind of expensive at $19 and change today. But consider: While the stock sells for 23 times earnings, analysts on average — not just Stifel — see Mani growing its earnings at upwards of 40% per year over the next five years. That’s incredible speed for a company this size, and if Mani management can achieve it, the stock could be cheap at 23 times earnings or even a bit more.