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 worst and sorriest, too.
And speaking of the best ...
Unlike the refrain from its commercials, shares of MasterCard (NYSE: MA ) are anything but "priceless." Fact is, they've got a price, and it's getting higher every day, helped most recently by yesterday's upgrade to "outperform" from investment banker Keefe, Bruyette & Woods (KBW).
Which sounds strange at first, because according to the analyst, the U.S. economy is hell-bent for recession. At the same time KBW was upgrading MasterCard, it was issuing downgrades on every banker it could lay a hand on, from Bank of Hawaii (NYSE: BOH ) and BB&T (NYSE: BBT ) to Eastern Virginia Bankshares and SunTrust (NYSE: STI ) . The difference between these worthies and MasterCard, according to KBW, is two-fold:
- Unlike domestic bankers, MasterCard gets 50% of its revenues from outside the U.S. Thus, if a recession hits, it will hurt MasterCard less than it does the "real" banks.
- In addition to maintaining its revenue growth, KBW thinks MasterCard "can hold the line on revenue margins," ensuring rising profits even in the face of a U.S. recession.
But does KBW know what it's talking about? I mean, about MasterCard's being impervious to the recession? Given the hullabaloo and helter-skelter roiling Washington lately, I think it's pretty clear the recession idea has some credence.
Let's go to the tape
The answer to that question is more complicated than it seems. Admittedly, the banker isn't off to a great start, when the first few numbers you notice on its CAPS page are the negative score, CAPS rating of 20.61, and near 50% accuracy -- thanks in part to picks like:
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Company
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KBW Said:
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CAPS Says:
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KBW's Pick Beating (Lagging) S&P by:
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Aflac (NYSE: AFL )
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Outperform
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****
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27 points
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Safety Insurance
(Nasdaq: SAFT )
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Outperform
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****
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(10 points)
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Nymex (NYSE: NMX )
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Outperform
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***
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(7 points)
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Now, the last time we checked in on KBW, profiling (and applauding) the banker's endorsement of Motley Fool Stock Advisor recommendation Aflac, I noticed something else. Here's what I wrote at the time: "A careful review of the portfolio will show that KBW's negative score on CAPS can be attributed entirely to just two really bad calls ... KBW isn't necessarily an abysmal stock picker -- it could be just a little worse than average, and currently experiencing an exceptional run of bad luck."
Of course, I wrote that piece back in March. The succeeding nine months have confirmed that KBW is indeed an abysmal stock picker -- even if it was right on the money in endorsing Aflac.
Foolish takeaway
Sadly for MasterCard shareholders, I don't expect to see KBW's luck hold out with its latest call. You see, MasterCard isn't just staring a probable recession in the face. It's also carrying a terribly high stock valuation -- 31 times forward (2008) earnings, with five-year future growth projected in only the high teens. To me, that looks overpriced, and KBW looks wrong.
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