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 stop at telling you what the analysts said. 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 CAPS, our tool not only for rating stocks, but also for rating the analysts who rate stocks. 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 ...
As stock markets roared higher yesterday, warehouse retailer Costco (NASDAQ:COST) roared higher than most, boosted by a late-morning endorsement from Goldman Sachs.

According to the investment bank, Costco customers are a loyal bunch, and will stick with the store despite its new, more restrictive policy on returning consumer electronics. Costco's currently liberal returns policy -- Can't figure out how it works? Return it free of charge! It broke outside of the manufacturer's warranty period? Return that one, too! -- had been crimping margins at the retailer. But the free-wheeling days are at an end, and between the anticipated savings from fewer returns, and greater sales of higher-margin private label merchandise at its stores, Goldman foresees improved profits ahead for Costco. Result: An upgrade from "neutral" to "buy."

Sounds logical. Still, with its PEG currently sitting north of 2.0, Costco looks awfully pricey based on its current level of profitability. If Goldman's predicted margin improvements fail to appear, investors could be in for a nasty shock. Which raises the question: Just how good of a stock shaman is Goldman Sachs, anyway?

Let's go to the tape
For the answer, we turn to Motley Fool CAPS. When last we checked in on Goldman a couple of weeks ago, it was sitting pretty in the top 10% of CAPS players with a CAPS rating of 90.44. Checking back today, we find that the firm has slipped a bit. Goldman's new 80.80 rating barely qualifies it for "All-Star" status and, with an accuracy rating of precisely 50%, Goldman is literally about as good a market forecaster as a flipped penny.

Examining the banker's retail-oriented flips, we find:

Meanwhile, its flops include:

Goldman has a mixed record when it comes to retail. It seems to do particularly badly when panning retailers -- not a problem with its new view on Costco. It also tends to do worse with its wrong calls than it does well with its correct ones. This suggests that the bankers may be waiting too long before becoming convinced that a stock deserves a buy rating, and missing much of the upside in consequence. With Costco, though, that shouldn't be a problem. The stock has firmly lagged the S&P over the last 52 weeks, underperforming by a good 14 points. If Goldman is right, it may well be getting in on a retail idea early this time.

As for the stock's seemingly high price, a word from the Fool's own Tom Gardner may lend some comfort. Tom, by the way, chose Costco for our Motley Fool Stock Advisor portfolio five years and 59% ago. Says he: Costco "never seems to offer a terribly cheap price, because it never has any hugely disappointing news to send investors into a panic. With its rock-solid balance sheet and exceptional management, we foresee returns of [X] annually over the next five years."

You just gotta know what the magic number behind that "X" is, don't you? Click here to take a free trial of the Stock Advisor newsletter to get that one juicy answer as well as answers to the bigger question of how to boost your portfolio over the long run.

Fool contributor Rich Smith does not own shares of any company named above. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 876 out of more than 50,000 players. Join the CAPS community to hone your stock-picking skills without risking a dollar. Dell is a Stock Advisor and Inside Value newsletter recommendation. The Fool has a disclosure policy.