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 our recurring column, "This Just In," we cover the most headline-worthy upgrades and downgrades, test the analysts' logic, and examine their records to help you decide whether they're worth listening to at all.

In "Get to Know a Guru," we go another route. Here, we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land. Up this week: BWS Financial.

Profiles in punditry
As August rolled to a close on Friday, an unfamiliar name (to me, at least) popped up on MSN Money's tally of analyst downgrades. A firm called BWS Financial was highlighted as downgrading the stock of Motley Fool Stock Advisor biotech pick Biogen Idec (NASDAQ:BIIB) to "hold." Now, if you're wondering just who the heck BWS Financial is, and what it knows about makers of multiple-sclerosis drugs, you're not alone. Fortunately, that's the kind of question I aim to address in this column. So without further ado, let's ...

Get to know this guru
Here's what CAPS has to say about today's contestant.

BWS Financial offers individual and institutional investors specialized investment management services. The strategy of BWS is a value-driven, contrarian long only strategy. Principal Hamed Khorsand focuses on small and mid-capitalization companies that are misunderstood by the investment community. Mr. Khorsand has a successful track record in forecasting the emergence of new technologies that the investment community has yet to identify.

Further research reveals that BWS stands for "Beating Wall Street, Inc." Khorsand set up shop under this moniker in 2000 and, to date, remains its sole analyst.

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

Sometimes yes, sometimes no -- but most times, no. The firm's website states that BWS covers a total of 50 stocks, of which 29 currently carry recommendations. We track most of these recommendations on CAPS, and so far, the firm's record is pretty hit-or-miss. BWS is "in the money" on fewer than half of the recommendations we track, and it ranks in the slightly-below-All-Star 75th percentile on CAPS.

What's more, but for a single fortuitous call on IPTV chipset maker Sigma Designs (NASDAQ:SIGM), BWS would be deeply in the red on CAPS. See for yourself:

Absent that Sigma Designs endorsement, picks such as the following would probably have the firm ranked in the "Under 20" wilderness.

Separating the analyst from the analyzed
Mind you, there's nothing wrong with being wrong more often than right -- so long as you're brilliantly right when you're right at all. Heck, this "swing for the fences" philosophy has our own Motley Fool Rule Breakers recommendations beating the S&P 500 by an average of 15 percentage points. When you get down to individual picks, therefore, it's entirely possible that you'll want to listen to BWS on those stocks where it has a good track record. Stocks like ... Biogen Idec.

Yes, you read that right. After dissing BWS's record over the past several paragraphs, I'm now going to give credit where it's due, because BWS actually has a pretty fabulous record on Biogen Idec. In fact, before closing out its buy rating last week, BWS had outperformed the market by a whopping 41 percentage points over the previous six months with its Biogen Idec call.

After that run, BWS, now saying the stock has become "richly priced for hopes that the Company would be bought," believes that it's time to take a breather -- and some profits. Assuming that a buyout does not come to pass, BWS thinks Biogen Idec will "not see earnings getting [an] additional boost until late 2009," with the result that the "shares should remain flat for the next several months."

Now that BWS is out of the stock, we all have an opportunity to watch what happens next. If it treads water as predicted, it's entirely possible that this is one of those select stocks for which BWS has a special "feel," and on which its advice should be heeded. If, on the other hand, Biogen Idec continues to rise, well, I suppose we'll have to ascribe the firm's earlier gains on this pick to luck.