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 ...
Shares of Motley Fool Rule Breakers recommendation Bankrate (Nasdaq: RATE) are soaring this afternoon. This pleasant contrast to last month's plunge is explained, according to market pundits, by two things: first, the company's just-announced purchase of Nationwide Card Services and Savingforcollege.com; second, positive comments on these purchases, and on Bankrate's valuation in general, out of Citigroup. My fellow Fool Rick Munarriz has posted his thoughts on the acquisitions. However, before you go there, let's take a look at why Citi is banking on Bankrate.

The megabanker cited several factors as contributing to its decision to upgrade this stock from "hold" to "buy." Notably, Citi expects the new businesses to "materially boost earnings" at Bankrate. Citi also thinks the buyouts will help to diversify Bankrate's revenue base, which could be key to maintaining revenue growth if the mortgage market keeps heading south. Also attractive is that Bankrate has already fallen 28% over just the past month.

But is that cheap enough to make Bankrate a buy? For clues to Citi's stock-picking prowess, we turn once again to examine its record, as tracked on CAPS.

Let's go to the tape
With a CAPS rating of 90.25, this analyst sits comfortably within the top quintile of our players -- a stratum we refer to as the "CAPS All-Stars." It's gotten here not by dint of consistent accuracy, however, but rather in spite of a lack of it. Fact of the matter is, Citigroup's analysts are wrong nearly as often as they are right, as illustrated by picks such as these:

So it seems that Citi doesn't have the firmest grip on the housing sector. That bodes ill for its ability to soothsay a stock that, by its own admission, is so closely tied to the mortgage market. Still, Citi has racked up a pretty impressive record rating stocks with business models similar to Bankrate's:

Foolish takeaway
Seems to me that there are as many arguments for Citi's ability to call Bankrate right as there are against it. But when you get right down to it, I actually agree with the analyst on this one.

When I look at Bankrate, I see a company generating $29 million in free cash flow and priced at about 29 times those cash profits. And while I admit that this doesn't make the firm "cheap," it does make it, at worst, fairly priced, and with a potential to surprise us. That's why I rated Bankrate an outperformer on CAPS last month, and it's why I agree with Citi today.