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 ...
In what just might be a historic first, the stock of kafemeister Starbucks (Nasdaq: SBUX ) saw that black swan of the analyst world this morning: an analyst downgrade to "sell." As of today, Banc of America has become the only analyst on record as panning Starbucks. According to the analyst, Starbucks is embroiled in a whole witch's brew of troubles these days, ranging from slowing growth, to margin pressures, to a nationwide slowdown in consumer spending.
Considering that the same $3 that will buy you a cup of premium java at Starbucks could as easily put a whole can of Maxwell House in your pantry, I must admit: I see B of A's point. But before jumping to any conclusions -- after all, we're talking about the lone dissenter in a field of 21 analysts following the stock here -- let's take a look at this analyst's record:
Boasting a 94.83 CAPS ratings and a record of getting its picks right 54% of the time, B of A earns the coveted "Wall Street's Best" icon on CAPS. Since we began tracking the analyst, it's picked up such wins as:
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Company
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B of A Said:
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CAPS Says:
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B of A's Pick
Beating S&P by:
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Amazon.com
(Nasdaq: AMZN )
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Outperform
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**
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141 points
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SunPower (Nasdaq: SPWR )
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Outperform
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**
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84 points
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Apple (Nasdaq: AAPL )
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Outperform
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***
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81 points
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Of course, no one's perfect. B of A has made its share of goofs as well. For example:
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Company
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B of A Said:
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CAPS Says:
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B of A's Pick
Lagging S&P by:
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Alcatel-Lucent
(NYSE: ALU )
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Outperform
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*
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34 points
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Merrill Lynch
(NYSE: MER )
|
Outperform
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**
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27 points
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Pfizer (NYSE: PFE )
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Outperform
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***
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25 points
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Foolish takeaway
I don't know about you, but the thing that jumps out at me from the tables above is the fact that many of B of A's best (and worst) scores come in the form of contrarian picks -- recommending stocks that investors at large seem to think don't deserve the attention. But what also jumps out at me is that this analyst shows real skill at racking up sizeable outperformance by going against the grain. Sure, it makes some calls wrong, but the market outperformance achieved on the upside more than outweighs its losses on the down.
But will its bearish call on Starbucks work out similarly? I'm not so sure. Reviewing the company's valuation, I see here a firm selling for 33 times trailing earnings, but expected by most analysts to grow those earnings at about 22% annualized over the next five years. That works out to a PEG of 1.5, which, while not exactly cheap, may not be quite expensive enough to justify a sell rating on this company. Much as I respect B of A's record, therefore, I suspect the banker may be bailing on Starbucks too early.
And it's not just me saying that, either. Over at Motley Fool Stock Advisor, Fool co-founder David Gardner still has Starbucks on his menu. Find out whether he agrees with today's featured analyst, or thinks you're better off using today's sell-off to "freshen up" your cup with some additional shares. Coffee may cost upwards of $3 at Starbucks, but you can try out Stock Advisor for free.
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