This Just In: Upgrades and Downgrades

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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...
Motley Fool Hidden Gems recommendation Dawson Geophysical (Nasdaq: DWSN) sold off hard yesterday. Down 15% yesterday on an "earnings miss," it's still dropping like a rock as I write, despite receiving an upgrade this morning from one of the best stock pickers in the business, Capital One Southcoast.

The banker called yesterday's sell-off "overdone," dismissing the quarter's miss as a short-term bump in a long, ascending ride. Fellow Fool Toby Shute argues in this column that investors dissed Dawson over a perceived slowing in sales growth, along with compression in profit margins. But 45% year-over-year sales growth is still impressive, and earnings-per-share growth of 40% is only slightly less so.

According to Capital One, we're looking at a seismic shift in how Dawson grows its profits. In the past, growth came from adding new crews, at the expense of free cash flow. The banker now sees Dawson as essentially fully staffed, and ready to begin leveraging its crews through new "channel counts, increased efficiency, and pricing power."

Let's go to the tape
While I'm often skeptical of Wall Street's wizards, I have to say -- this is one analyst I'd listen to. Over on CAPS, where we've tracked Capital One's performance for the past 18 months, we've pegged this banker as one of Wall Street's Best stock pickers. Capital One ranks in the top 3% of investors, and it gets things right nearly three times more often than it goofs.

Focusing its efforts in the oil patch, Capital One has picked the following winners:

Company	Capital One Said:	CAPS Says (5 max):	Capital One's Pick Beating S&P by:
Arena Resources  (NYSE: ARD)	Outperform	****	93 points
Carrizo Oil & Gas  (Nasdaq: CRZO)	Outperform	**	61 points
National Oilwell Varco (NYSE: NOV)	Outperform	*****	57 points
PetroQuest Energy (NYSE: PQ)	Outperform	***	21 points

Of course, even the brightest investors make mistakes. Here are a couple of Capital One's losers:

Company	Capital One Said:	CAPS Says:	Capital One's Pick Lagging S&P by:
Tesco (Nasdaq: TESO)	Outperform	****	29 points
BJ Services  (NYSE: BJS)	Outperform	****	25 points

If there's one knock against Capital One, it's that the firm doesn't seem to have ever met an oil stock it doesn't like. With a total of 23 picks on record (active and closed), Capital One has yet to make an underperform call on a stock from that sector.

But that shouldn't detract from the analyst's record on its endorsements: Capital One is right more than seven times out of 10. It's even been right on Dawson itself -- the banker's recommendation to buy the stock last February netted investors 27 points worth of market outperformance in less than two months.

Foolish takeaway
Fools, this analyst has proven itself exceedingly astute with energy plays. Its recommendation today of a stock that's also endorsed by the super-successful investors at Motley Fool Hidden Gems further convinces me that Capital One's worth heeding.

And the kicker? Dawson carries a 14.4 P/E, yet most analysts expect it to grow its profits at 24% per year going forward. Stocks don't get much cheaper than that, folks.