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Intel Corporation (INTC), Freeport-McMoRan Copper & Gold Inc. (FCX): Monday’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 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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