This Just In: Upgrades and 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 simply tell you what the analysts said. We 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 ...
JPMorgan opened up the trading week with an upgrade for gaming retailer GameStop (NYSE:GME) Monday. JP cited three key factors in recommending that investors "overweight" the stock in their portfolios:

• GameStop beat expectations (and earnings estimates) last quarter (and the quarter before that) despite crimped supplies of next-generation gaming consoles such as Nintendo's Wii. Logically, you'd expect gamers to keep their wallets in their pockets, and leave games on the store shelves, while waiting for a console on which to play them. Shortages of Wii consoles in particular, however, didn't seem to impair GameStop's ability to earn a profit.
• Noting that shipments of the Wii have "accelerated" in recent months, JPMorgan expects their easier availability to turbocharge GameStop's sales in the current quarter.
• Tiding the store over in the meantime, JPMorgan says that GameStop is doing a brisk trade in used gaming cartridges, buying them cheap, and reselling for a profit.

While that sounds logical, many investors may find GameStop priced a bit too close to perfection for comfort. Trading at 37 times trailing earnings, while expected to grow profits at "only" 20% per year over the next five years, the company sports a pricey 1.8 PEG. Before following the banker's advice, and chasing the price higher, we want to know: Just how good of a stock picker is JPMorgan, anyway?

Let's go to the tape
For the answer, we turn once again to CAPS for a glimpse at JPMorgan's record. There we see that the firm boasts a rank in the 89th percentile of CAPS players, despite a mediocre accuracy rating of 52%. Drilling down to the firm's record on gaming-related stocks in particular, we find winners like:

Meanwhile, JPMorgan tends to cluster its losers in other industries -- retailers, for example:

Foolish takeaway
So if JPMorgan has a weak record in retail generally, and GameStop's stock in trade is ... retailing games, does that mean you should ignore the banker's advice? Not necessarily. JPMorgan has built up an impressive record in predicting the trajectory of stocks tied to the gaming industry. Long story short, the firm's high P/E notwithstanding, I suspect that JPMorgan is making the right call in upgrading GameStop.

Moreover, the Fool's own David Gardner has endorsed GameStop as a two-time Motley Fool Stock Advisor pick. According to David: the firm "enjoys a leadership position in its sector (strengthened by its acquisition of Electronics Boutique) ... [and] is entering a period that should see sales shoot up like the high score on a fresh new Ms. Pac-Man." Claim a free 30-day trial of Stock Advisor and you can read the just-released issue and get David's most recent thoughts on GameStop.

But don't just take my word for it, or David's, or JPMorgan's. Check out what the GameStop CAPS score leader has to say about it. You can learn the identity of this mystery stock picker, and find out what he (or is it she?) thinks about the stock, when you visit GameStop's CAPS page.

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 1,395 out of more than 30,500 rated players. Nvidia is a Stock Advisor recommendation. The Fool has a disclosure policy.