This Just In: Upgrades & Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't tell you what the analysts said and stop there. No, we're here to hold Wall Street to account. We're going to tell you what the analysts said ... and then show you whether they know what they're talking about. Helping us in this endeavor will be Motley Fool CAPS, our tool not only for rating stocks, but also for rating the analysts who rate stocks. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best ...
Thursday evening, sports apparel company Quiksilver (NYSE:ZQK) stunned the Street with a one-two punch consisting of lower year-over-year earnings and lowered guidance going forward. Rightly expecting this news to result in a stock price wipeout, four of Wall Street's finest rushed out earnings downgrades overnight, ensuring their publication before the carnage began on Friday. The results: CIBC World Markets, Piper Jaffray, and W.R. Hambrecht reduced their ratings for the stock from buy equivalents to a trio of holds. Wedbush Morgan, already at hold, went one step further and labeled Quiksilver a sell. Just hours later, markets opened and the stock fell 10% by the close of trading for the week.

Bully for them, you say -- their reputations are intact, but what about our money?

Not so fast, Tex
Actually, their reputations aren't entirely intact. You see, we're wise to this trick at Motley Fool CAPS, and don't give companies credit for their ratings until the close of trading on the day they make 'em. Hindsight may be 20-20, but you get zero points for "predicting" the past.

As for your money, and what to do with it now that the Street's turned negative after the fact, we turn to CAPS to answer that question, based on the firms' records. Our records show that of the four firms, three are currently being rated -- Piper, Hambrecht, and Wedbush -- and at last count, Wedbush was the star of the group. Its 99.89 rating makes it the 27th best-ranked player in all of CAPSland, and puts it easily within the top 10% of Wall Street firms tracked. For that reason alone, I'd give serious consideration to following the firm's advice and selling Quiksilver.

As for the competition, Piper picked Quiksilver as a buy too long ago for this decision to be captured in our CAPS ratings. Overall, however, I find the firm's 57.31 rating, and record of being right with its calls just 46% of the time, pretty lackluster. And last but not least, Hambrecht. This firm is just a few fractions of a point shy of CAPS "All-Star" status with a ranking of 79.96. But its knowledge of Quiksilver speaks for itself. Hambrecht's September 2006 endorsement of Quiksilver has already cost it 22 points' worth of underperformance on CAPS.

Here are the best (and worst) picks made by each firm since we began tracking them six months ago on Motley Fool CAPS, where stocks are rated from one star up to five stars:

Put it all together, and my instinct on this one is to follow Wedbush's lead and sell Quiksilver, rather than sit on the fence with the other three raters. But just like professional analysts, we Fools have differing opinions on these things. Take, for example, my esteemed colleague from the field of law enforcement, Rich Duprey (a.k.a. TMFCop).

Looking at the same numbers these professionals reviewed in making their hold and sell decrees, Rich finds hope. Says he: "The market's offering virtually no premium for Quiksilver on a forward price-to-earnings ratio, and the company's price-to-sales ratio is a tempting 0.59 on trailing revenues (factoring in the discount the market provided overnight). With Wall Street expecting little, and baking the bad news into Quiksilver's share price, just about any positive news should make this stock rise." Foolish words indeed (in a good sense).

But if five opinions just aren't enough for you, here's one more you would be Foolish indeed to heed: The single best Wall Street analyst on the subject of Quiksilver. Find out who it is, and where he thinks the stock is going, by clicking right here.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's ranked 31 out of more than 24,000 raters. The Fool has a disclosure policy.