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 ...
Investors in metals got a bit of bad news Friday morning, when investment banker Cowen & Co. dropped its rating on Allegheny Technologies (NYSE: ATI) a notch. Arguing that its fellow analysts are overly optimistic on this quarter's earnings outlook, Cowen took the coward's way out, pulled its endorsement of the titanium titan, and went "neutral" on ATI.

"Coward"? Isn't that a bit strong?
Perhaps. People do say that discretion is the better part of valor, and in today's topsy-turvy markets, perhaps Cowen's making the right call in being conservative. To get a better idea of how such conservatism has paid off for it in the past, let's turn to Cowen's record on CAPS and see what it can tell us.

Let's go to the tape
Overall, Cowen's record fails to impress. The analyst boasts only a 57.80 CAPS rating, with less than 41% accuracy on its picks. Yes, if you add those two stats up, Cowen has about a perfect 100% -- but that's sort of like bragging that you got a "perfect" 800 on your SATs.

Cowen's more notable gaffes include:

Company	Cowen Said:	CAPS Says (out of 5):	Cowen's Pick Lagging S&P By:
Merck (NYSE: MRK)	Outperform	****	13 points
Motorola (NYSE: MOT)	Outperform	**	33 points
Time Warner (NYSE: TWX)	Outperform	***	25 points

On the plus side, Cowen's done a great job picking aerospace and defense companies -- big users of titanium:

Company	Cowen Said:	CAPS Says (out of 5):	Cowen's Pick Beating S&P By:
Raytheon (NYSE: RTN)	Outperform	*****	32 points
General Dynamics (NYSE: GD)	Outperform	*****	17 points
SAIC (NYSE: SAI)	Outperform	*****	11 points

Then again, buying defense stocks in wartime is sort of a no-brainer. But that's not the reason I disagree with Cowen's ATI call. Simply put, I think the analyst is going overboard in its caution on ATI and focusing too intensely on short-term concerns.

Cowen, you see, is worried that consensus estimates for ATI look "too high." But it's not as if the stock is suffering from an overabundance of optimism. Most analysts are calling for a 6% decline in sales at ATI this quarter -- and a 23% plunge in profits. If Cowen thinks that showing constitutes optimism, methinks the analyst doth protest too much.

Foolish takeaway
Moreover, if you look out past the current quarter, ATI seems downright cheap today. The stock carries a price-to-earnings ratio of 10 but is expected to grow its profits at 17% per year over the next half-decade. Even if that growth rate proves a tad ambitious, it leaves a pretty big margin for error. So in this Fool's view, ATI is a buy.