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 its worst and sorriest, too.

And speaking of the best ...
I'm going to succumb to temptation today. But can you blame me? How can a Fool not write about a Wall Street analyst that rates a company "avoid"? It's so much more colorful than "underperform" or "sell" -- carrying the connotation of "stay away from that stock -- it's got cooties." In any case, that's what happened yesterday, when Baltimore-based stock shop GARP Research initiated coverage on TiVo (Nasdaq: TIVO  ) and told investors to "avoid" the stock.

Just as you may never have seen an "avoid" rating before, neither is GARP Research a household name. So before deciding whether to avoid TiVo stock, let's look into this analyst's record and see whether we should listen.

A star is born (whether fading or blazing remains to be seen)
Actually, GARP has just earned a jester's cap on CAPS. Yesterday's rating was the seventh out of GARP that we've recorded, so the analyst has only now developed enough of a track record to earn itself a ranking on CAPS -- specifically, a CAPS rating of 46.25. And thanks to TiVo dropping in value yesterday, the analyst now holds a 57% accuracy record to boot.

Before TiVo shifted the balance, GARP's record was an even 50/50. 50% wins:

Company

GARP Said:

CAPS Says (5 max):

GARP's Pick Beating S&P by:

Luminex (Nasdaq: LMNX  )

Outperform

***

29 points

Illumina (Nasdaq: ILMN  )

Outperform

***

8 points

Gen-Probe

Outperform

****

5 points

And 50% losses:

Company

GARP Said:

CAPS Says (5 Max):

GARP's Pick Lagging S&P by:

Macrovision

Outperform

***

31 points

TASER (Nasdaq: TASR  )

Outperform

***

15 points

Myriad Genetics

(Nasdaq: MYGN  )

Outperform

***

11 points

What can we tell about GARP from the above? Well, we can see that it has a biotech focus and that it does pretty well in this sphere. On the other hand, the data so far suggests that this analyst probably should not be allowed near tech stocks without adult supervision.

And what does it tell us about TiVo?
None of the major news outlets appears to have covered the reasoning behind GARP's initiating TiVo at "avoid." Judging from the analyst's name, though, which refers to the "Growth at A Reasonable Price" style of investing, my guess is that GARP either doesn't see growth prospects at TiVo or doesn't think the stock price is reasonable.

Motley Fool Rule Breakers analyst Rick Munarriz might take issue with the first conclusion, since he's praised TiVo's deals with Comcast (Nasdaq: CMCSA  ) and Amazon.com (Nasdaq: AMZN  ) . But I disagree with Rick, and I agree with GARP on both counts.

In terms of growth, TiVo recorded negative sales growth last quarter. In terms of price, the stock is difficult to value, but it doesn't look like much of a bargain, based on its persistent inability to earn a profit and its consistent success at burning cash. Review TiVo's stats on Yahoo! Finance, and the vast majority of the numbers you will see are negative -- negative sales growth; negative profit margins; negative cash flow. The stock's performance may be positive, but that only makes the overvaluation look that much steeper.

So my advice here would basically track GARP's. Avoid TiVo. It's got cooties.


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