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 worst and sorriest, too.

And speaking of the best ...
It seems everybody who's anybody in the investment game has an opinion on GPS-chip maker SiRF Technology (Nasdaq: SIRF) this morning. Unfortunately for investors, that opinion can be summed up in a single word: Downgrade.

SiRF reported a 92% fall-off in its Q4 numbers last night -- check out fellow Fool Anders Bylund's detailed account of the news. By the time markets opened this morning, seven of Wall Street's finest had tossed SiRF back into the sea, wearing cement galoshes. Jefferies, Lehman Bros., Soleil, Oppenheimer, FTN Midwest, Longbow and Canaccord Adams -- each and every one of them downgraded SiRF from the functional equivalent of a "buy" rating to the dysfunctional equivalent of a "hold."

Really? Just a hold?
Why does a 90% plunge in past profits, and an earnings warning on future profits that Barron's describes as "Dramatically Short Of Estimates" merit even a "hold" rating? Soleil gives us a couple of clues. That analyst slashed its price target by more than half this morning, but still sees value in the company based on its "strong patent position and leading market share." And if wild cards are your thing, Soleil even thinks we could see a competitor try to buy SiRF on today's weakness.

Whether or not Soleil's brother stock pickers agree with every point of its reasoning, in the end, they come to the same conclusion that last quarter's numbers make even a "dramatically" weaker SiRF something less than an obvious "sell." Are they right? For clues to the various stock pickers' acumen in, well, picking stocks, let's examine their respective records.

What we have here are three All-Star investors voting with their toes as they pull away from the icy waters of SiRF. Aligned with them, however, are four exceedingly mediocre investors that presumably have a propensity for "buying high," only to later panic and sell low. It's also worth noting that of the seven analysts listed above, CAPS has captured the previous SiRF buy recommendations of three -- Jefferies, Longbow, and Oppenheimer. In each case, this morning's sell-off leaves the analysts deeply in the red: Lehman underperformed the market by 55 points on SiRF; Longbow by 70 points; and Oppenheimer is worst-in-class -- it has recommended buying SiRF twice in the past 18 months, lagging the market by a total of 73 points on the two picks.

Foolish takeaway
Put it all together, and I can't help but think that the analysts are wrong on SiRF today. Whether that's because they were too early with their buy recommendations, and SiRF will rise from today's lows; or they're too late to admit their mistake, and should be selling, I do not know. But their records strongly suggest that they're likely wrong one way or the other.

So for what it's worth, let me bring a fresh pair of eyes to the table and tell you what I see in SiRF. I see here a firm that generated $37.4 million in free cash flow -- at least over the four quarters preceding the one that spawned today's sell-off. (SiRF failed to include a cash flow statement in yesterday's earnings release.) It's a company that grew its profits at 38% per year over the past five years, and that, at last report, analysts were still expecting to grow at 25% going forward. To me, that suggests the company is worth a good deal more than its post-sell-off market cap of $440 million.

Call me a Fool, or call me a contrarian -- but I'd be buying SiRF today.

Got an opinion on SiRF? We've got a place to voice it: Motley Fool CAPS: It's fun, it's free, and it just might make you famous.