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This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycles 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 only tell you what the analysts said. We'll 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 ...
You know how in movie car chases, the good guy in the sports car outwits the bad guy by pulling the emergency brake, whipping his car into a U-turn, and then racing past his pursuer? It felt a little bit like that this morning, when Swiss investing superpower UBS yanked its "sell" rating on General Motors (NYSE: GM  ) and replaced it with a "buy."

In so doing, UBS perfectly parroted a maneuver that Citigroup executed last month -- and for the same reason. UBS sees in the automaker's recent peace pact with the UAW a potential for up to $3 billion in annual savings. Not only will GM unload $51 billion in health-care costs on the autoworkers' union, says UBS, the labor-detente will also knock down GM's basic employee wages to roughly the same level as archrival Toyota (NYSE: TM  ) pays. That should help to close the cost chasm GM's profits have historically failed to leap.

Sounds good so far. But before we jump to the conclusion that UBS knows what it's talking about, let us take a moment to examine the firm's record in that regard.

Let's go to the tape
As it turns out, UBS often does know what it's talking about. Despite getting only 53% of its predictions correct, the firm has racked up significant points on the predictions that did work out. With a CAPS rating of 91.95, UBS ranks among the top 10% of investors tracked in CAPS, helped by auto-industry-related picks that include:


UBS Said:

CAPS Says (Out of 5):

UBS's Pick Beating S&P By:

Precision Castparts (NYSE: PCP  )



104 points

Alcoa (NYSE: AA  )



27 points

On the flip side, though, UBS has also made such sector-specific screw-ups as:


UBS Said:

CAPS Says:

UBS Pick Lagging S&P By:

Cummins (NYSE: CMI  )



89 points

Paccar (Nasdaq: PCAR  )



31 points

Hmm. On balance, the four auto-industry-related picks lean slightly in UBS's favor, but not convincingly so. Perhaps the firm has done better picking actual automakers?


UBS Said:

CAPS Says:

UBS Pick (Beating) Lagging S&P By:

Daimler (NYSE: DAI  )



25 points

GM (from July 2006 through today)



(4 points)

Because its GM pick predated the time when CAPS went live, I had to go to the archives at to learn this, but it appears that UBS suffered only a bit from its past bearish call against GM. Over the past 15 months, the stock rose 25%, outperforming the S&P 500's 21% rise by 4 points. (Consequently, UBS's pick underperformed the S&P by this amount.) Its Daimler pick has fared even better, outperforming the market by 25 points in five months.

Foolish takeaway
On balance, I think that argues in favor of following UBS's advice to buy GM today. Granted, the PEG ratio of 1.5 -- a price-to-earnings ratio of 12, divided by 8% projected growth -- doesn't look attractive. But if UBS is right about the reduced costs GM's deal with the UAW will bring, we could see that 8% grow in future quarters. In sum, I'm optimistic that UBS will be proved right about this one.

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10/21/2016 4:01 PM
GM $32.04 Up +0.29 +0.91%
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