Get to Know a Guru

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." In a recurring column called "This Just In," we cover the most headline-worthy upgrades and downgrades, testing the analysts' logic and examining their records to help you decide whether they're worth listening to at all. And in "Get to Know a Guru," we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land.

Profiles in punditry
An unfamiliar name (to me, at least) popped up on MSN Money's tally of analyst upgrades and downgrades Friday. Avondale Partners upgraded the stock of small-cap hospital techie Computer Programs & Systems (NASDAQ:CPSI) to a "buy" rating. If you're wondering just who the heck Avondale is, and what they know about hospitals, you're not alone. According to Motley Fool CAPS:

Avondale Partners is an independent investment banking firm based in Nashville, Tennessee. Avondale takes pride in the fact that the company is owned by its 90 working professionals. The highly experienced professional team focuses on middle market companies within the following industries: business services and government outsourcing, consumer and industrial, health care, and technology, media and telecommunications. The senior analyst group at Avondale averages 9 years of industry experience and [the company] has achieved national recognition for its work.

Checking out the firm's website, I further learned that Avondale has been in business just six years, has offices in six cities in addition to Nashville, and has 20 analysts in its research department.

Are these guys any good?
So much for the firm's biography -- we really want to know about its resume. When Avondale speaks, should investors listen?

How can I put this gently? Avondale's analysts are a lot like American Idol's Sanjaya. Probably very nice people -- just not very skilled at the job they're supposed to be doing. At least, that's what our preliminary information suggests. With an overall CAPS score of 54.59, these professional analysts pick stocks about as well as your average, CFA-less individual investor. Worse, they're getting their picks wrong more often than right (with an accuracy rating of just 46%). Recent flubs include:

Of course, every dog has its day. Avondale had better fortune recommending:

Mind you, Avondale could be right in saying that Computer Programs & Systems will outperform the market. The company pays a respectable dividend and has a rock-solid balance sheet. Although its 22 P/E looks rather high for a company expected to grow earnings at just 14% per year long-term, if CP&S maintains the 21% growth rate it's achieved over the last five years, it could well surprise its critics. I'm simply saying that you're better off evaluating the company on its merits, and ignoring Avondale's endorsement.

If you'd like to hear from an analyst with a truly stellar record of calling CP&S right, click on over to the company's CAPS page. Just don't be surprised when you learn the top prognosticator's not a professional analyst at all.

And if investing in health-care technology is your thing, don't forget to pick up a free trial subscription to Motley Fool Stock Advisor on your way out. One of our best-performing picks operates in this sphere, and it's returned better-than-600% profits to our members in the four years since we picked it. For the price of a free trial, you can find out what it is.

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 137th out of more than 27,000 raters. The Fool has a disclosure policy.