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 …
Oh, how the mighty have fallen, and how low the Crisis has laid the heads of the Wall Street Wise. Just one year ago, Citigroup ranked among the best stock pickers on the Street. But a series of disastrous bearish bets on the consumer-led recession ...

Company

Citi Said:

CAPS Says:

Citi's Pick Lagging S&P by:

Netease.com (Nasdaq: NTES  )

Underperform

*****

52 points

Marvel Entertainment

(NYSE: MVL  )

Underperform

*****

50 points

Netflix (Nasdaq: NFLX  )

Underperform

***

50 points

Disney (NYSE: DIS  )

Outperform

****

13 points

... has laid waste Citi's reputation over the course of a few short months. Today, Citi ranks in the bottom 20% of investors tracked by CAPS, its reputation stained with an anemic rate of 47% accuracy on its picks, and dogged by the humbling statistic: The average Citi pick lags the returns of the humble S&P 500 index.

Not even successful, recession-resistant picks like Wal-Mart (NYSE: WMT  ) and UST (NYSE: UST  ) -- up a dozen percent and a half-percent, respectively -- have sufficed to salvage Citi's rep as one of the smartest cookies in Wall Street's oven.

Nor will this one
And so now, here comes Citi pulling its previous buy rating on Amazon (Nasdaq: AMZN  ) -- behind the curve once again. When Citi recommended selling Amazon in January of last year, that call cost investors as much as 33 points of market underperformance. Spinning on a dime to recommend buying the stock in January of this year, Citi proved the perils of market timing -- handing investors a 13-point loser.

Today, Citi warns: As investor sentiment on Amazon waxes positive, "consumer spend datapoints have become consistently more negative." And while Citi considers the stock "a Core Holding – given its management team, market opportunity, business model, and competitive position," the banker fears future "market share losses or a materially greater than expected Recession hit."

Foolish takeaway
To sum up, on the one hand, Citi says Amazon is a company you want to own forever. On the other, Citi's record shows that it hasn't a clue when exactly is the right time to start owning Amazon. So let me suggest a time for you:

Now.

Consider the numbers. Over the past 12 months, Amazon.com has generated a simply astounding amount of free cash flow -- $970 million in total. That works out to a price-to-free cash flow ratio of just 22. Yet, consensus estimates predict Amazon will keep on growing its profits at a 25%-per-year pace over the next half-decade. To my mind, this offers a proverbial "good price" on an indisputable "great company." At today's price, I'd be a buyer.

And yet, darn the luck, The Motley Fool's disclosure policy won't let Rich buy so much as a share of Amazon for 10 days after publication of this column. Fortunately, at least he owns one other stock mentioned above -- Marvel Entertainment.

You can find Rich Smith on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1,999 out of more than 120,000 members.

Wal-Mart Stores is a Motley Fool Inside Value selection. Netease.com is a Rule Breakers pick. Netflix, Marvel Entertainment, and Amazon.com are Stock Advisor recommendations.


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  • Report this Comment On November 06, 2008, at 4:18 PM, madmilker wrote:

    it is now all about.....milk and bread!

    People in America need to realize jus what got America in this shape…”cheap” yes so-call cheap items from a foreign land and now the largest company in America wants to make everything “green” but at the same time they put 95% made in China in their stores in China and support Chinese export…don’t take my word…its on their China web page quote*Wal-Mart firmly believes in local procurement. We recognize that by purchasing quality products, we can generate more job opportunities, support local manufacturing and boost economic development. Over 95% of the merchandise in our stores in China is sourced locally. We have established partnerships with nearly 20,000 suppliers in China. *end quote! Now! if there be 182 country’s making items for the world to buy and they have only 5% of the pie in China…duh! This company makes the nice people of China support their currency(yuan) by keeping it in their country working for the people there…. but with the “yuan” going up in value and the US dollar going down…all the foreign items that the American consumer buys thinking it is cheap has went up in price. People…its all about the currency and to keep a currency strong you got to keep it floating around the country you live in so it can work for you. For the past 12 years all them US dollars are being shipped overseas to a foreign bank and with the American worker not making anything for the foreigner to buy the “we the people” have to turn to the “second” largest employer in America(Uncle Sam) to sell “we the people” debt in order to get all them dollars back! 50 years ago a foreigner would had given their left nut for a US dollar or a Hershey’s chocolate bar and today the same foreigner has got Uncle Sam and the American consumer by both all the while Hershey is moving the chocolate factory to Mexico. Wake up! America and think “MADE IN AMERICA.”

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