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 ...
Investors in tech guru Apple (Nasdaq: AAPL  ) received a surprise endorsement from Oppenheimer yesterday, as the analyst initiated coverage of their stock with an "outperform" rating. So, um, why did the stock drop more than half a percent, on a day when the tech-heavy Nasdaq gained nearly a percent?

Here's why
How do I put this gently? Oppenheimer-endorsed stocks are about as healthy for your portfolio as a pound of uranium. Unshielded.

Now, I'm not saying that all of the analyst's recommendations fail to achieve critical mass. Some have indeed gone nuclear:

Company

Oppenheimer Said:

CAPS Says

(5 max):

Oppenheimer's Pick Beating S&P by:

Intuitive Surgical

(Nasdaq: ISRG  )

Outperform

****

104 points

Activision (Nasdaq: ATVI  )

Outperform

*****

87 points

Nokia (NYSE: NOK  )

Outperform

****

41 points

But I am saying that, more often than not, stocks tend to implode after Oppenheimer picks 'em:

Company

Oppenheimer Said:

CAPS Says

(5 max):

Oppenheimer's Pick Lagging S&P by:

SiRF Technology 

(Nasdaq: SIRF  )

Outperform

*****

74 points

CDC Corp. (Nasdaq: CHINA  )

Outperform

****

59 points

Motorola (NYSE: MOT  )

Outperform

**

43 points

As a result, at any given moment, Oppenheimer's reputation resembles the less-optimistic of the two fates posited for Schrodinger's cat. Oppenheimer guesses wrong on its picks about 55% of the time and, on average, its picks underperform the market by about 4 percentage points -- locking Oppenheimer in a box inhabited by the bottom quintile of investors.

So when I hear Oppenheimer base its "buy" rating on a prediction that 3G iPhone sales will surpass Apple's own prediction by 45%, you'll excuse me if I make a beeline for the fallout shelter. Yes, Apple does have a tendency to set the bar low for itself when issuing guidance. But too-low by a third? Even Steve Jobs isn't that cheeky.

Foolish takeaway
No, Fools. Much as I love Apple (and I've been a Mac addict since before there were Macs back in 1985), I believe that 36 times earnings prices the company quite fairly today. If you want to rely on Oppenheimer's judgment and pay much more than that, then I'd suggest you stock a good supply of iodine in your pantry, and read up on how to identify the first symptoms of radiation poisoning.

One of the brothers Gardner also likes Apple right now; it's a recommendation of the dueling-Fool Stock Advisor newsletter service. To find out whether Tom or David picked it and why, sign up for a 30-day trial, on us.

Fool contributor Rich Smith does not own shares of any company named above. Intuitive Surgical is a Rule Breakers pick, and Activision is also a Stock Advisor recommendation. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1,745 out of more than 105,000 players. The Fool has a disclosure policy.


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