Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Alcoa Inc (AA),, Inc. (OSTK), Chipotle Mexican Grill, Inc. (CMG): Wednesday’s Top Upgrades (and Downgrades)

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 downgrades for both Alcoa Inc (NYSE:AA) and, Inc. (NASDAQ:OSTK). But the news isn’t all bad, so before we get to those two, let’s first check out why one analyst is…

Chipotle Mexican Grill, Inc.Putting Chipotle on the menu
Markets are off a couple tenths of a percent in early Wednesday trading, but shareholders of at least one stock are still grinning: Chipotle Mexican Grill, Inc. (NYSE:CMG). The upscale burrito-meister is up 2.3% itself today on the back of an upgrade to “buy” from analysts at Argus Research. Citing expected same-store sales gains of 2.5% in 2013, Argus is taking its target price on Chipotle Mexican Grill, Inc. (NYSE:CMG) shares to $430. But is it right?

Unfortunately, probably not.

Priced in excess of 41 times earnings today, Chipotle is not quite as expensive as it looks. Free cash flow at the fast-casual restaurant chain is a beefy $324 million for the past 12 months, or 11% ahead of reported net income. Yet even so, this leaves the shares trading for 36 times free cash flow, or significantly more than you’d ordinarily want to pay for a company like Chipotle, which is expected to grow its profits at about 20% per year over the next five years.

In other words, with fast growth and good free cash flow, Chipotle is a terrific business, and one you should want to own at the right price. Unfortunately, today’s price is not right.

Alcoa: No longer shiny
Switching gears now from aluminum-foil-wrapped food to aluminum foil manufacturing, we turn to Alcoa Inc (NYSE:AA) and its downgrade. Citing a predicted 5% cut in aluminum pricing for 2013, and an even steeper, 12% drop in 2014, JPMorgan removed its buy rating from Alcoa Inc (NYSE:AA) this morning, and downgraded to “neutral.” JP notes that demand for aluminum remains “firm”; however, supply is even stronger, which makes it hard for companies like Alcoa Inc (NYSE:AA) to charge more for their metal.

Result: The banker is cutting its predicted earnings for Alcoa Inc (NYSE:AA) to $0.29 this year, and $0.55 next year — reductions of 49% and 47%, respectively — and cutting its price target to just $9 a share. Personally, I think the analyst is still being too generous.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.