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 did.

But in "This Just In," we don't tell you only what the analysts said. We'll show you if 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 ...
Well. Isn't this just precious. Now that it's too late, it seems everybody who's anybody in the investment game suddenly hates WellPoint (NYSE: WLP). On Tuesday, at least five of Wall Street's heavy hitters came out with downgrades on the stock, and you don't even need to guess at the reason this time: It's the earnings warning, Fool. 

Said WellPoint: "We are making these revisions to our prior earnings guidance due to higher than expected medical costs, lower than expected fully insured enrollment and, to a lesser extent, the changing economic environment in which we are operating." To which JPMorgan Chase, Bear Stearns, Goldman Sachs, Stifel Nicolaus, and even FTN Midwest replied: "Sell."

Or more accurately, "Don't buy." Now that the damage is done, and WellPoint's stock price is well and truly whacked, the analysts settled for downgrading the shares to various synonyms of "hold." But might even that be an overreaction? I mean, the shares tumbled a grand total of 28% yesterday -- surely that leaves some room for improvement, right?

Let's go to the tape
Well, let's find out. For a few clues to whether the analysts are being overly pessimistic, overoptimistic, or calling this one just right, we turn to CAPS for a glimpse at their respective records:

Here we have four All-Star CAPS investors, ranking in the top 20% of all CAPS players (plus, um, FTN Midwest) declaiming in unison against WellPoint. Looks ironclad, huh? Well, before we all don our lemming suits and follow the analysts off the cliff, let's examine a few of the stocks that failed to participate in yesterday's relief rally on Wall Street:

Foolish takeaway
I see a real disconnect between Wall Street and Main Street here. On the one hand, we've got four good analysts (and FTN -- don't forget FTN) panning WellPoint, while Mr. Market obligingly sells the stocks of any insurer that might have the same problems.

On the other hand, we've got the vast majority of lay investors on CAPS saying: "Hold up a sec! Aren't you the same guys who failed to warn us in time about WellPoint in the first place? And by the way, we like these companies."

We can't both be right. Somebody has to be wrong on this call. But who? You tell us.