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 simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
No sooner had men's apparelier Jos. A. Bank (Nasdaq: JOSB ) reported stylin' first-quarter earnings, than investors bid its shares up 14% on Tuesday. And no sooner had that happened, than our old friend First Albany came out yesterday and shot the stock down, downgrading it from neutral to sell. As you may recall, I profiled First Albany for this column back in February, discussing its recommendation that investors buy Travelzoo (Nasdaq: TZOO ) . (By the way, as it turned out, I was wrong, and First Albany was right on that one. Since recommending that investors buy it, First Albany's pick has beaten the market by a good 14 percentage points.)
Yesterday's downgrade provides an interesting contrast to the situation with Travelzoo. There, I foresaw an embarrassment for First Albany; it recommended the stock based on a collapsing stock price, but the recommendation didn't "take effect" until the price had already rebounded. Contrarily, with Jos. A. Bank ("Joe" to its friends), First Albany waited for the shares to leap, then downgraded them -- setting itself up to profit from a pullback.
Is First Albany right? Did Joe's shares leap too far, too fast? To gauge the analysts' skill at guesstimating the stock's trajectory, we turn to CAPS to examine its record.
At first glance, that record fails to impress. Although it's true that First Albany sports an All-Star rating of 85.26, that's down 9.5 points from where the firm stood just two months ago. Simply put, First Albany has been on a losing streak, hurt by picks such as:
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First Albany says:
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CAPS says:
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First Albany's pick lagging S&P by:
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Stamps.com (Nasdaq: STMP )
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Outperform
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****
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11 points
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Gymboree (Nasdaq: GYMB )
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Outperform
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**
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7 points
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Admittedly, the firm has also made some right calls:
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First Albany says:
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CAPS says:
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First Albany's pick beating S&P by:
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Nanophase (Nasdaq: NANX )
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Outperform
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****
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14 points
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Nutrisystem (Nasdaq: NTRI )
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Outperform
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****
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12 points
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But does First Albany know Joe, in particular? Perhaps not. Reviewing the broker's record since initiating coverage on the stock in October 2006, we can see that its initial neutral rating lagged the market's performance substantially. Over the proceeding six months, the stock outperformed the S&P by 20 points.
Combine this flub with the firm's underperformance on Gymboree, shown above, and its 21-point underperformance on a December Dress Barn (Nasdaq: DBRN ) endorsement, and I'm detecting a pattern of woeful misunderstanding of clothiers at First Albany.
Between First Albany's lackluster record on clothing retailers, and Joe's current valuation -- which at 19 times trailing earnings doesn't look all that unreasonable for a company expected to grow its profits at 15% per annum over the next five years -- I conclude that First Albany's recommendation here doesn't deserve to be given a lot of weight by investors.
Then again, I was wrong on Travelzoo, and First Albany was right. So if you're skeptical of my assessment as well, I can't blame you. Before deciding what to do, feel free to seek a third opinion from Joe's top scorer on CAPS to find out what he thinks of the company.
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 currently ranked 356th out of more than 27,000 raters. The Fool has a disclosure policy.
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