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 worst ...
Flash memory maker SanDisk (Nasdaq: SNDK ) had a rough start to this trading week, courtesy of investment banker Caris & Company. On no apparent recent news, basically out of the blue, Caris decided to initiate coverage on SanDisk yesterday, and did so with that rarest of Wall Street ratings -- the "sell."
Perhaps the worst thing for investors, though, is the not-knowing. None of the major media outlets has picked up the story, leaving investors to guess at what reason Caris has for hating this stock. I mean, sure, there are objective reasons for pessimism. My Foolish colleague, Anders Bylund, outlined a few for us in the wake of the last quarter's earnings report: The CEO's labeling flash memory's pricing environment "challenging," for one. No one likes to hear a CEO utter the dreaded C-word. But hey, Caris, SanDisk is already down 34% over the past year -- can it really get worse than this?
Let's go to the tape
For clues to how well Caris does at calling the bottom (or lack thereof) on stocks, we take our usual stroll over to CAPS. What we find there suggests one possible reason that SanDisk shares are up a little more than 1% as I write despite yesterday's "sell" rating. Because among professional stock pickers, Caris is as close to as bad as it gets. Despite getting the odd call right ...
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Company
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Caris Said:
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CAPS Says:
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Caris's Pick Beating S&P by:
|
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AMD (NYSE: AMD )
|
Underperform
|
**
|
44 points
|
|
Micron (NYSE: MU )
|
Underperform
|
***
|
7 points
|
Caris actually gets 56% of its picks wrong ...
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Company
|
Caris Said:
|
CAPS Says:
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Caris's Pick Lagging S&P by:
|
|
LSI
Corp. (NYSE: LSI )
|
Outperform
|
***
|
40 points
|
|
Marvell Technology
(Nasdaq: MRVL )
|
Outperform
|
****
|
39 points
|
|
Broadcom (Nasdaq: BRCM )
|
Outperform
|
***
|
22 points
|
|
Texas
Instruments
(NYSE: TXN )
|
Outperform
|
****
|
4 points
|
As a result, Caris remains mired in that stratum of CAPS-land that we politely refer to as, those rated "Under 20." And the fact that Caris is panning a stock that sells for 15 times trailing free cash flow, yet is expected to grow its profits at 15% per year, suggests Caris is going to be proven wrong once again on this SanDisk call.
That said, there is one quirk to Caris's record that I think bears consideration. Did you notice where the analyst loses so many of its points? That's right -- Caris goes wrong when it gets overoptimistic about chip stocks. In contrast, it's won big by betting against semis like SanDisk. My hunch, therefore, is that regardless of Caris's overall record, and despite SanDisk's possible cheapness, investors should tread warily here.
When this bear gets its claws out, it's best to climb a tree and watch from a safe distance.
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