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 ...
On Wednesday, a Wall Street analyst downgraded shares of Motley Fool Rule Breakers pick Suntech Power (NYSE: STP ) .
And there was great lamentation, rending of hair, and donning of sackcloth and ashes.
But I also hear that the analyst in question was Collins Stewart.
And there was much rejoicing.
As a general rule, when a Wall Street analyst downgrades a stock, investors tend to panic and sell -- fearing that if someone wearing pinstripes hates their stock, then said pinstriped personage must know something they don't. But guess what? They don't.
Know more than you, that is. Oh, sure, they talk a good game. Collins Stewart cites two key reasons for downgrading the shares:
- "First, the recent credit crisis led to an increase in borrowing costs for solar projects. This has put additional pressure on module prices."
- Second, a devaluing euro is reducing Suntech's profits when denominated in dollars. Solar modules scheduled for delivery to European buyers in 2009 are selling for less than $3.17 per watt. With such sales making up 60% of Suntech's total, Collins Stewart believes the average selling price for Suntech's wares will slip about 3% to $3.40 per watt.
And the banker may even be right on the facts. But that doesn't mean it's drawing the right conclusions from them. Once upon a time as we tracked Collins Stewart in CAPS, it seemed to know solar pretty well. It rode First Solar (Nasdaq: FSLR ) and Canadian Solar (Nasdaq: CSIQ ) to riches earlier this year, crushing the S&P's returns on each buy-rated stock. But as time progressed, this came to resemble more and more mere beginner's luck. Since closing out winning positions on these two equities, just look at how Collins Stewart has fared in the solar sector:
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Company
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Collins Stewart Said:
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CAPS Says:
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Collins Stewart's Pick Lagging S&P by:
|
|
Emcore (Nasdaq: EMKR )
|
Outperform
|
*
|
11 points
|
|
First Solar
|
Outperform
|
**
|
20 points
|
|
JA Solar (Nasdaq: JASO )
|
Outperform
|
***
|
22 points
|
|
Corning (NYSE: GLW )
|
Outperform
|
*****
|
22 points
|
|
Yingli Green Energy
(NYSE: YGE )
|
Outperform
|
*****
|
46 points
|
That's right, folks. As of this moment, Collins Stewart is 0-for-5 for its five active solar recommendations. What's more, it was 0-for-6 up until it closed out its position in Suntech -- a 25-point loser for the banker.
Foolish takeaway
This is the point in the column where I would ordinarily point out that Suntech sells for a 16 P/E, has 40% growth projected for it by most analysts on the Street, and therefore looks for all the world like a screaming bargain. I could tell you all that, but I won't -- because telling you all that would imply that I have some modicum of respect for Collins Stewart's arguments, and feel them worth rebuttal.
I ain't afraid of no ghosts
Instead, I trust you'll understand when I say this: If sometime late at night next Friday, I answer my front door and find myself confronted by a three-foot-tall bedsheet with scissor-cut eye sockets, carrying a hollow plastic jack o' lantern, hopping up and down excitedly, and chirruping "Boo!" -- well, I'm more likely to be frightened by that than by a Collins Stewart downgrade.
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