Friday’s Top Upgrades (and Downgrades): AMC Networks Inc (AMCX), Activision Blizzard, Inc. (ATVI)

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 include an upgrade for AMC Networks Inc (NASDAQ:AMCX) and a higher price target for Activision Blizzard, Inc. (NASDAQ:ATVI). But it’s not all good news, so let’s start off with a quick look at why one analyst is…

Not talking to Chuck
The big, bad news of the morning is that analysts at Compass Point have just issued a sell recommendation on Charles Schwab Corp (NYSE:SCHW) . Previously only neutral on the stock, Compass now sees a real possibility that Chuck’s shares will fall to $15, and recommends dumping the stock before it gets there. But could it be that Compass Point is steering you wrong?

I think so, and here’s why: According to Compass, its downgrade today was “primarily driven by valuation, as shares now trade at 20x our 2014 EPS estimate.” The analyst sees small investor trading as rather “lackluster,” and believes interest rates are unlikely to rise significantly in the short term, removing that potential catalyst for Schwab profits as well.

Be that as it may, I’m not sure there’s a strong case for actually selling Schwab at today’s prices. Although the stock looks pricey from a trailing P/E perspective, its price-to-free cash flow ratio is still less than 21 and its forward P/E ratio also looks attractive relative to projected 18% annual profits growth. Throw in a modest 1.3% dividend yield and, while I don’t think the stock is as cheap as it recently was, it’s still not so grossly overvalued as to require you to rush right out and sell it.

Mad about AMC Networks Inc
The story at AMC Networks Inc (NASDAQ:AMCX) looks even better, and kudos are due to the analysts at Maxim Group for pointing this out today. Maxim, you see, wrapped up the trading week with an upgrade to buy for the network behind such hits as “Mad Men” and “The Walking Dead.”

At first, this might seem like a strange call, what with AMC Networks Inc (NASDAQ:AMCX) costing “32 times earnings” and all. But here’s the thing: AMC generates a whole lot more cash from its business than its GAAP “earnings” let on. If the company got to report $136 million in such earnings last year, its actual free cash flow for the same period was $550 million — four times more!