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'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 ...

Something jumped out at me when I pulled up today's list of upgrades and downgrades on MSN Money. Right there at the tippity-top of the list was an upgrade on AFLAC (NYSE: AFL  ) from Citigroup (NYSE: C  ) , from "sell" to "neutral." Inoffensive in itself (laudatory, even, since Motley Fool Stock Advisor had recommended AFLAC to its members), the upgrade nonetheless set an alarm bell ringing in the back of my head, because ... well, didn't I see somebody downgrading AFLAC from "neutral" to "sell" just a few days ago?

I did.

It was Citigroup.

Just one week ago, the megabanker was warning investors that AFLAC wasn't going to turn around its sales as quickly as many people seemed to think. Four days later, AFLAC announced that it had landed a contract as the exclusive provider of cancer insurance to employees of Japan's postal service, and Citigroup now says this contract will reduce the risk of declining sales. Ahem.

Now obviously, my first instinct on noticing this "quick 180" is to launch directly into a rant about the short-term focus of Wall Street's money wizards. Do not pass go. Do not collect $200. Go immediately to rant. But upon further review of Citigroup's record, I noticed that the bank actually does a decent job for its clients by following this short road to profits. So much for never letting facts get in the way of a good story.

Fair's fair, and today I want to give Citi its due. I may not respect short-term trading moves like these, but the fact of the matter is that by being right 55% of the time, Citi has earned itself a CAPS rating of 95.65 and a place among "Wall Street's Best" stock pickers on CAPS.

Among the firm's better picks -- few as short-term as the AFLAC calls, and some honest-to-goodness long-term decisions -- we find:

Company

Citigroup Said:

CAPS Says (Out of 5):

Citigroup Pick Beating S&P By:

Freeport-McMoRan  (NYSE: FCX  )

Outperform

*****

43 points

BB&T (NYSE: BBT  )

Underperform

***

24 points

RadioShack  (NYSE: RSH  )

Underperform

*

22 points

Of course, when you change you mind as often as Citigroup does, chances are you're going to make some rash, and wrong, decisions along the way. And so Citi has:

Company

Citigroup Said:

CAPS Says:

Citigroup Pick Lagging S&P By:

Fannie Mae  (NYSE: FNM  )

Outperform

*

37 points

American Equity Investment Life

Outperform

**

36 points

Nortel Networks  (NYSE: NT  )

Outperform

**

33 points

Interesting that one of Citi's worst picks ever is another insurance company. Will AFLAC turn out as badly for those who heed Citi's advice? To be clear, I'm referring to today's advice. Not last week's. And who knows what the banker will be telling us the day after Thanksgiving. (See how I slipped a rant in here anyway?)

I'm not sure either way. All I know for certain is that I'm glad Citi didn't actually go all the way and label AFLAC a "buy." Granted, AFLAC has been a real success story for investors who listened to Tom Gardner's advice when he recommended the stock back in June 2006. Since then, the stock has outperformed the S&P 500 nearly 2-to-1, growing 29% in value. (Believe it or not, that kind of growth is pretty common for Tom's picks.)

But at today's price-to-tangible book value of 15, it looks richly priced to me. On the other hand, its trailing-12-month return on assets of 2.5% is a plus. It's better than Presidential Life's 0.7%, even though its price-to-tangible book value ratio is 0.9. Call it a "neutral" at best.

And don't ask me to change my mind next week.


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