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 analysts in the business takes a fresh look at a previously uncovered sector, and announces to the world which stocks it would buy, and which ... not?
Personally, I listen closely, and from what I hear, R.W. Baird seems to be bullish on the railroad industry -- and on CSX (NYSE: CSX ) and Burlington Northern Santa Fe (NYSE: BNI ) in particular.
Initiating coverage on the railroad sector yesterday, Baird gave only a shrug and a neutral rating to two other major players, Union Pacific (NYSE: UNP ) and Norfolk Southern (NYSE: NSC ) . In contrast, it pegged CSX and Burlington Northern to "outperform."
Why the disparity? Excellent question. You see, while Briefing.com reported Baird's latest ratings, it left out one bit of trivia -- the reasons Baird likes two stocks, and not the others. Streetinsider.com confirms that the ratings are official ... but nobody seems to know the explanations behind these ratings. Whether it's due to faulty reporting, or a reticent analyst, not a single major media outlet has any details on the initiations.
Speak up, Baird!
There are few situations more frustrating to the individual investor than the one we face today. Baird wants us to buy CSX and Burlington Northern, yet it won't tell us why. However, while we're unable to confirm what Baird thinks, here at CAPS we can at least clue you in to how well it thinks.
Which is good to know, because as it turns out, Baird is one analyst who always knows which way to turn at a railroad crossing. While Baird gets more plaudits for high-profile picks like this year's endorsements of Starbucks (Nasdaq: SBUX ) and JPMorgan Chase (NYSE: JPM ) -- and these picks are indeed working out well -- this banker really earns its fees in the transportation industry. Just look at how a few of these picks have traveled from Point A to point B:
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Stock
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Baird Says:
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CAPS says:
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Baird's Picks Beating S&P By:
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YRC Worldwide (Nasdaq: YRCW )
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Underperform
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**
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56 points (three picks)
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Conway
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Outperform
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*
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23 points (two picks)
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JB Hunt Transport Services
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Outperform
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*
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38 points
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Over the three years that we've tracked Baird's recommendations in the Road and Rail industry, this analyst has racked up a record that's not just enviable -- it's downright magical. Out of 12 recommendations total, including those to buy and sell, Baird has called these stocks right nine times. 75% accuracy. That's pretty darn good, if you ask me.
How'd they do that?
I do not know. And to be frank, I'm not even going to try. You see, when I look at the four stocks Baird profiled yesterday, I shudder at what I see. Massive debt loads relative to equity. Free cash flow that lags reported net income -- literally nothing attracts me here.
But am I going against the grain, and shorting the stocks in the face of Baird's endorsement? Heck no!
Warren Buffett tells us that an investor should never invest outside his "circle of competence" -- and if that's true for buying stocks, it's true 10 times over for selling them short. Maybe the uber-competent Buffett can pick winners anywhere but tech, (Indeed, Buffett was riding the rails long before Baird got interested in 'em.) but I definitely cannot.
Time to chime in
But that, dear reader, is why you are here. Somewhere out there, someone certainly knows more about railroad stocks than I do. I'm guessing that a few of you might have a hunch as to why Baird, and Buffett like these companies so much -- and why we should as well.
So help a Fool out, will you? Click on over to Motley Fool CAPS, and tell us which of these stocks to buy, and which ones to sell. You can cast your votes on:
Motley Fool CAPS: It's fun, it's free, and it just might make you famous.
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