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 worst ...
The trading week started off optimistically Monday, with Milwaukee-based international banker R.W. Baird issuing across-the-board upgrades to everyone and anyone involved in auto parts. Modine Manufacturing, Superior Industries, and Motley Fool Stock Advisor selection BorgWarner (NYSE: BWA  ) all received clemency as their underperform ratings were replaced with OEM-certified neutral ratings. Meanwhile, Visteon, Accuride, ArvinMeritor, Commercial Vehicle Group, Methode Electronics, Magna International, and Tenneco got honest to goodness outperform ratings.

Citing a recovery in what it calls the "adjacent" sectors of homebuilding, trucking, and retailing, Baird believes that the auto supply sector should rebound along with the rest of the economy. With their share prices down, and Wall Street expecting little out of the sector, Baird says now is the time to move back into auto parts stocks.

So hurray! The auto sector is primed for a comeback! Let's everybody buy shares of GM (NYSE: GM  ) and Ford (NYSE: F  ) , and invest in foreclosed housing in Detroit!

Or not
Problem is, when it comes to "calling bottoms," Baird is a middling equity-grease monkey at best. The analyst's sub-50% accuracy record tells you that Baird guesses wrong slightly more often than right, and it sports a CAPS rating in the bottom 30% of investors -- hardly the kind of mechanic you want working on your portfolio. Within the automotive sector in particular, the company has made several wrong turns:

Company

RW Said:

CAPS Says (5 max):

RW's Pick Lagging S&P by:

Harley-Davidson

(NYSE: HOG  )

Outperform

***

24 points

Lear (NYSE: LEA  )

Outperform

**

15 points

Although to be fair, it's picked a couple of winners as well -- one quite a striking winner:

Company

RW Said:

CAPS Says (5 max):

RW's Pick Beating S&P by:

Johnson Controls

(NYSE: JCI  )

Outperform

*****

34 points

Copart (Nasdaq: CPRT  )

Outperform

*****

4 points

Still, the analyst appears to be flipping pennies at the auto sector -- half the time it hits, half the time it misses. A portfolio of all of Baird's picks (tracked by CAPS) would have underperformed the S&P 500 by more than 88 points over the last 20 months.

Foolish takeaway
Now, does any of this mean Baird is wrong about the auto sector being priced to move today? Not at all. The analyst has close to a 50-50 record of being right in the past. All I'm really saying here, I guess, is that you can flip a coin as well as these guys can, so there's no reason to take their opinion over your own.


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