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 ...
What do you do when one of the best stock pickers in the business reverses course -- totally out of the blue -- and endorses a previously hated stock? Me, I listen up. And from what I hear, Credit Suisse has become suddenly bullish on DryShips (Nasdaq: DRYS ) .
Yesterday, the Swiss stock siren sounded the "climb aboard" on DryShips, pulling a sudden 180 on its previous "underperform" rating on the stock (and pulling the rug out from under a number of shorts, I suspect) and predicting the stock will outperform the market over the next 12 months.
But is Credit Suisse right?
Let's go to the tape
We draw our first inference on the analyst's accuracy from the most reliable source possible: Credit Suisse's past performance, which we track on CAPS. Notwithstanding the standard disclaimer, I know of no better indicator of whether an analyst has got "chops" than whether it's demonstrated them in the past.
And as a matter of fact, yes, Credit Suisse does seem to know a thing or two about picking winners. Most of the time this analyst tells you a stock is going up, it proceeds to do just that, with the result that Credit Suisse outperforms 90% of the investors we track on CAPS. And although the analyst's biggest winners -- companies like priceline.com (Nasdaq: PCLN ) and Sohu.com (Nasdaq: SOHU ) -- have historically hailed from the tech sector, Credit Suisse's reputation in shipping and freight movement is none too shabby:
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Stock
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CS Says:
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CAPS Says:
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CS' Picks Beating S&P by:
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|
Diana Shipping (NYSE: DSX )
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Outperform
|
*****
|
3 points
|
|
Frontline (NYSE: FRO )
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Underperform
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****
|
9 points
|
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DryShips
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Outperform
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**
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18 points (3 calls)
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CSX (NYSE: CSX )
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Outperform
|
****
|
30 points
|
|
Genco Shipping (NYSE: GNK )
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Outperform
|
****
|
76 points
|
So when Credit Suisse now comes and tells us that its thinking on DryShips has changed entirely, and the stock's now a buy -- I would listen. Hard.
And if we did, we'd hear what, exactly?
Here's what Credit Suisse is saying about DryShips this week:
- Expectations that China will scale back iron ore imports have shipping rates set to fall.
- That said, if demand should pick up elsewhere, this could surprise the market, push rates back up ... and pull DryShips shares along with them.
- Credit Suisse sees DryShips earning as much as $1.15 per share this year, and only slightly less in 2010 ($1.09). Both estimates are up from the banker's previous guesses.
- Last but not least, did you know that DryShips also does oil? Credit Suisse does. In addition to hauling stuff on its freighters, Credit Suisse reminds us that DryShips has "rig assets" that investors are ignoring -- rigs that could net DryShips a couple of extra long-term contracts from Big Oil "later this year."
The words "upside surprise" come to mind ...
Foolish takeaway
Yet despite all this good news, I have to say, Fools: DryShips still scares the peacoat off of me.
As Credit Suisse pointed out in the caveats to its upgrade, this company had dug itself into a hole of debt that required raising $1 billion in new capital this year. Obtaining it salvaged DryShips' balance sheet, but diluted its shareholders by more than tripling its share count.
When you get right down to it, therefore, yes, the opportunity for profit exists. True, the balance sheet no longer looks set to capsize. But DryShips remains a company that looks out for No. 1 first, last, and always -- and views its own shareholders as little more than a source of funds.
Caveat investor.
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