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Facebook Makes the Grade and Is Now a Buy

Taking the pulse of FB and 67 big-name upgrades and downgrades


Yep—you read that correctly. After spending months in sell territory, Facebook (FB) has made a complete turnaround in a matter of days. Over the weekend, my Portfolio Grader screening tool picked up on a number of key changes:

  • The stock’s Quantitative Grade, which measures the current level of buying pressure, was upgraded from D to B.
  • The Fundamental Grade, which measures Facebook’s financial health on eight levels, was upgraded from C to B. This was caused by
    • Analyst Earnings Revisions, which were upgraded from B to A.
    • Earnings Surprises, which were upgraded from D to A.

Facebook’s change in fortune is all related to its second-quarter earnings announcement, which was released last week. According to Mark Zuckerberg, the company’s drive to be more mobile friendly is finally paying off. In fact, Facebook’s mobile business accounted for 41% of its advertising revenue last quarter! So compared with Q2 2012, revenues jumped 53% to $1.81 billion. This trounced the $1.62 billion consensus estimate. Meanwhile the company saw adjusted earnings of 19 cents per share, beating the 14 cents consensus earnings estimate by nearly 36%.

Shares of FB surged to a new high after the news and have been climbing since. But the consensus is that there’s further upside from here: Facebook still accounts for just about 4% of the digital advertising market.  The analyst community certainly thinks there’s room for growth. Last Friday’s announcement sparked a race to the top as analysts have hiked up their earnings estimates:

  • Q3: The consensus earnings estimate has jumped 29% to 18 cents per share.
  • Q4: The consensus estimate has risen 24% to 21 cents per share.
  • 2013: The consensus estimate has climbed 23% to 70 cents per share.
  • 2014: The consensus estimate has jumped 19% to 93 cents per share.

The Facebook announcement is a textbook case why earnings season is such an important time for investors. And I believe that there are plenty of surprises—and upsets—to come. So I strongly recommend that you to continue running your stocks through Portfolio Grader; you can do this quickly and easily by saving your portfolio to the system.

In the meantime, let’s look at the 67 big blue chips that have been upgraded and downgraded this weekend. After taking a close look at the latest data on institutional buying pressure and each company’s fundamental health, I decided to revise my Portfolio Grader recommendations for each of the stocks listed below.


Last Week’s Holds, Now Buys

Symbol Company Name Quantitative Grade Fundamental Grade
AME Ametek B B
APD Air Products & Chemicals B C
ATVI Activision Blizzard B B
CHT Chunghwa Telecom Co. Ltd. ADS B C
JCI Johnson Controls B C
KOF Coca-Cola Femsa S.A.B. de C.V. B C
LLY Eli Lilly C B
MCK McKesson A B
MDLZ Mondelez B C
TRIP TripAdvisor A B
UAL United Continental Holdings B C

Last Week’s Sells, Now Holds

Symbol Company Name Quantitative Grade Fundamental Grade
AZN AstraZeneca C C
CLR Continental Resources D B
CVX Chevron D C
DG Dollar General D C
EEP Enbridge Energy Partners L.P. C D
ESRX Express Scripts D B
MJN Mead Johnson Nutrition D C
NJ Nidec Corp. C D
PLD Prologis D B
PX Praxair D C
SSL Sasol Ltd. D C


Last Week’s Buys, Now Holds

Symbol Company Name Quantitative Grade Fundamental Grade
ACN Accenture C B
ADP Automatic Data Processing C C
AMAT Applied Materials B D
BAX Baxter International C C
CB Chubb C B
CCI Crown Castle International C C
CMCSK Comcast Corp. Cl A Special C C
COST Costco C C
DEO Diageo PLC C B
DHR Danaher C B
EOG EOG Resources C C
GWW W.W. Grainger C B
ICE IntercontinentalExchange C C
KSU Kansas City Southern C C
MSI Motorola Solutions C B
NBL Noble Energy C B
NGG National Grid PLC ADS C C
PNR Pentair C C
RSG Republic Services C C
SHW Sherwin-Williams C C
SNDK SanDisk D B
STX Seagate C C
SYK Stryker B C
SYY Sysco B C
UL Unilever PLC ADS C B
UNP Union Pacific C C

Last Week’s Holds, Now Sells

Symbol Company Name Quantitative Grade Fundamental Grade
BBDO Banco Bradesco S/A ADS D C
CAM Cameron International F C
DE Deere D B
ERIC Ericsson D D
FTI FMC Technologies Inc. F B
GE General Electric D C
HMC Honda Motor Co. D D
JNPR Juniper Networks D B
JWN Nordstrom D C
PH Parker-Hannifin D C
RAI Reynolds American D C
SDRL Seadrill D B
VTR Ventas D B
WY Weyerhaeuser D B

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