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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best...
Oppenheimer opened the floodgates on the retail sector this morning, initiating coverage on not one, not two, but... 18 separate specialty retailers of all stripes. A few highlights:
- Staples, Lowe's (NYSE: LOW ) , and Bed Bath & Beyond (Nasdaq: BBBY ) all started at "outperform."
- On Best Buy, Home Depot (NYSE: HD ) , and Autozone (NYSE: AZO ) , Oppenheimer is hedging its bets with perform ratings.
- And the underperforms? (Read: "Sell.") Those went to just two of the 18: Advance Auto and Office Depot (NYSE: ODP ) .
So what now?
Does this mean you should buy Lowe's? Sell Office Depot? Not necessarily. For one thing, remember that the ratings listed above are all "initiations" -- as in, Oppenheimer has no track record on these stocks as of yet. (Perhaps indicative of the faith investors have in Oppenheimer's lack of experience, Office Depot at one point ran 10% higher today, despite Oppenheimer's sell rating -- probably in sympathy with Staples' earnings results.)
Compare and contrast
While Oppenheimer may lack significant experience on these stocks, however, it does have a track record in retail generally. In the "Multiline Retail" sector, Oppenheimer is batting a thousand on its two active picks:
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Stock
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Oppenheimer says:
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CAPS says:
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Oppenheimer's Pick Beating
(Lagging) S&P By:
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Kohl's (NYSE: KSS )
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Outperform
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**
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42 points
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J.C. Penney
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Outperform
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**
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(13 points)
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In its active "Specialty Retail" picks, Oppenheimer's doing worse:
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Stock
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Oppenheimer says:
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CAPS says:
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Oppenheimer's Pick Beating
(Lagging) S&P By:
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American Eagle (NYSE: AEO )
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Outperform
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***
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44 points
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Urban Outfitters
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Outperform
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**
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(8 points)
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Big 5 Sporting Goods
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Outperform
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*
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(9 points)
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So I repeat: What now?
Last but not least, let's make sure to notice that none of Oppenheimer's favorite stocks -- Staples, Lowe's and Triple-B in the above list -- is trading for a particularly attractive multiple. Staples and Bed Bath & Beyond both sell for P/Es of about 17, while Lowe's sports a 14 times multiple to earnings. Relative to the growth rates that analysts posit for the companies, these valuations make the stocks look slightly to moderately over-priced.
And while there's certainly room to argue the possible conservatism of Wall Street estimates for this sector generally, do you really want to bet on something less than a sure thing in this market? There are plenty of high-quality stocks that we know are out-and-out cheap.
Foolish takeaway
Now, I don't want to give Oppenheimer too hard a time. After all, despite guessing right on half its picks, the analyst does have a knack for picking enough outsize winners to offset its losers -- and is as a result beating the market by an average of 2.5 percentage points per pick.
So let me give Oppenheimer this much credit: On the off-chance that you have enough money to buy everything that the analyst recommended today, then the chances look good that you'll wind up beating the market just as well as Oppenheimer does -- by making a lot of bad bets, but enough good ones to offset your losses. Still, with the odds looking 50-50, it's more important than ever to not lock in on just one Oppenheimer guess and put all your eggs in that basket.
In other words: Diversification is key.
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