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 best …
On a day when almost every market in the nation tacked on 2% or better, Palm (Nasdaq: PALM ) tumbled 4% yesterday. Stranger still, it did so in the face of a bullish prognosis from Wall Street wizard Piper Jaffray.
Dismissing worries about Palm's latest earnings warning, Piper Jaffray argued that the new Palm Pre -- and, basically, nothing but the Pre -- offers a compelling buy thesis for the stock. Avers Piper: "Several carriers plan to launch the Palm Pre, and despite the challenging macro environment we anticipate this unique product will resonate with consumers. We believe the ramp of Pre smartphones will result in a significant earnings recovery. As such, we upgrade Palm to Buy with a $10 price target."
Pretty brazen, huh? Basically, Piper is saying to invest on the basis of the advent of a single product -- one that is not even available yet. One that will have to fight for a place at the table against:
- Smartphone offerings from sexier rivals Research In Motion (Nasdaq: RIMM ) and Apple (Nasdaq: AAPL ) .
- New rivals Garmin (Nasdaq: GRMN ) , Hewlett-Packard, and Dell.
- And -- if memory serves -- Motorola (NYSE: MOT ) is still making phones as well. (Just not profitably.)
Reviewing our archives on CAPS, it appears that, to date, Piper has a track record on only two of these above-named stocks -- and its results split down the middle on 'em. Piper's July 2008 pick of Apple is currently beating the S&P 500 by 18 points. However, its 2008 bet on Motorola lost 20 points to the market over the five weeks it was active.
These results, by the way, track pretty closely what we know about Piper's work in general. Over the course of the two-plus years we've tracked the analyst, fully 53% of its picks have gone awry. The fact that the banker edges into the ranks of our CAPS "All-Stars" at all depends more on a handful of stellar performers in other sectors -- First Solar (Nasdaq: FSLR ) in alternative energy (a near-quadruple for Piper), and Priceline.com (Nasdaq: PCLN ) in travel (a near-double), for example.
Foolish Pre-dictions -- and a Wise One as well
It seems a bit less than a sure thing that the Pre is going to create Piper's anticipated 50% upside for Palm stock -- and that's not just me.
Yesterday, fellow Fool Eric Bleeker argued that the expectation of a future Pre could actually hurt Palm's current business, by making prospective phone buyers hesitate before buying an "old" Centro for example. Meanwhile, up on Wall Street, Citigroup is warning that it is "concerned carriers may temper their support of legacy Palm products." Citi further predicted "another very challenging quarter ahead with losses & cash burn accelerated by marketing ramping for the 'Pre' launch driving the need for Palm to raise capital."
Considering that Palm is already unprofitable and burning cash, with a debt-heavy balance sheet and a whole slew of rivals in its chosen marketplace, an investment in the stock today amounts to little more than betting on a wing and a Pre-ayer. Check your Karma before buying.