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 ...
Beleaguered Swiss banker Credit Suisse put its battered CAPS reputation back on the line yesterday, wading into the Internet sector with a series of initiations, including on Google (Nasdaq: GOOG  ) . For a change, I think it's finally called one right.

Once upon a time, Credit Suisse ranked among the CAPS elite, a star stock picker whose acumen outperformed some 95% of the investing universe. But in recent months, CS has been burnt on a series of bad bets, particularly on oil and gas plays such as:

Company

Credit Suisse Said:

CAPS Says:

Credit Suisse's Pick Lagging S&P by:

Petroleo Brasileiro  (NYSE: PBR  )

Outperform

*****

33 point

Frontier Oil  (NYSE: FTO  )

Outperform

****

30 points

National Oilwell Varco (NYSE: NOV  )

Outperform

*****

30 points

CS got mired in the oil patch's muckety-muck, true, but it wasn't the only sphere in which it went astray. Mistakes there and elsewhere have pushed the banker's CAPS rating into the cheap seats, and it now underperforms more than 80% of the investors on CAPS, with 55% of its bets going bad.

So you can't blame the banker for taking a cautious stance on its new positions yesterday. Among the four stocks newly rated, three were "neutral" opinions -- Amazon.com (Nasdaq: AMZN  ) , eBay (Nasdaq: EBAY  ) , and Yahoo! (Nasdaq: YHOO  ) -- as it tests the waters in Internet stocks. One pool that it jumped happily into headfirst, though, was Google's.

Predicting that "Google's unique position as a market leader in a sector with robust long term growth prospects" will yield a "positive network effect arising from its dominant market share, advertiser/publisher relationships, and growing repository of data and information," CS initiated coverage on this one with a "buy" rating.

I agree
Granted, Google does not yet meet my oft-repeated (some would say "beaten to death") criteria for what makes a cheap stock. Its 22 P/E is a mite pricier than I'd like to pay for a projected 21% grower. And with free cash flow still lagging reported net income, the stock carries an even (if only slightly) higher price-to-free cash flow ratio of 24. Thus, the buy thesis on this one isn't yet obvious enough that I'm willing to back it up with my own cash (and of course, The Motley Fool's disclosure policy wouldn't permit me to buy in for 10 days in any case).

Foolish takeaway
That said, I doubt many would argue that Google is anything other than the proverbial great stock -- 24 times free cash flow may not yet be a great price -- but at least it's a good price. According to Warren Buffett, those are the stocks you want to own.

My advice: Do as Buffett says, and not as I foolishly (small "f") do. Don't wait for a discount price on great companies that may never come.

Petroleo Brasileiro is a Motley Fool Income Investor recommendation. Google is a Rule Breakers selection. National Oilwell Varco, eBay, and Amazon.com are Motley Fool Stock Advisor selections. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Smith does not own shares of any companies named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1,513 out of more than 120,000 members. The Fool has a disclosure policy.


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