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 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 ...
Hope springs eternal on Wall Street. Hope, at least, that the housing downturn is going to end soon. On Tuesday, FTN Midwest joined the queue of Wall Street Wise Men arguing that the homebuilders are ready to rebound. Unlike previous analysts entering the field, however, FTN picked and chose its, er, picks today, rather than making blanket statements about the industry at large. (Yes, Lehman Brothers, I'm talking about you and your February across-the-board upgrades. And yes, Citigroup, I'm mocking your similarly haphazard, and borderline manic-depressive, downgrade-upgrade-downgrade swings as well.)

Rather than throw a blanket over the whole dartboard, FTN picked just three big homebuilders to cover and assigned "buy" ratings to KB Home (NYSE: KBH), Lennar (NYSE: LEN), and Toll Brothers (NYSE: TOL). So FTN gets points for specificity, but how about accuracy?

Let's go to the tape
Sorry, investors. No such luck this time. While we admire FTN's restraint, FTN's record on CAPS just doesn't do a lot to encourage me about the analyst's ability to time this particular bottom. To the contrary, FTN sports a CAPS rating in the bottom 20% of investors, a record of guessing wrong 55% of the time, and of losing its customers an average of 8% (versus the market) per pick. Hard to get excited about a record like that.

Or about picks like these:

As it turns out, while today's buy ratings were characterized as "initiation" of coverage, FTN actually has considerable experience in the housing industry -- or at least the manufactured-housing niche of it. Problem is, the company's calls here are running 2-to-1 against it: Champion is working pretty well, but losses on Palm Harbor and Fleetwood outweigh the gains on Champion, and then some. Perhaps FTN should stick to semiconductor investing? At least there, it should be able to keep on splitting the difference between Intel and AMD.

Foolish takeaway
Calling bottoms is a tricky business, as FTN's record in manufactured housing, shown above, proves. While the housing market will stabilize eventually, for the time being, all three of the homebuilders that FTN calls "buys" are losing money hand over fist.

Are they the three that will do best when things turn around? Don't ask me, because I'd just be guessing. But don't ask FTN, either.