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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 ...
Harley-Davidson (NYSE: HOG  ) shareholders are humming "Born to be Wild" and playing air guitar this morning -- and you can thank Citigroup for the silliness. Citing channel checks that show Harley's sales falling "only" 15% to 20% in August, after a 30% skid in July, Citi predicts Harley will announce a 25% decline in sales when it reports earnings next month.

Um, isn't that bad news?
You might think so. But Citi's of another mind. It thinks that a 25% decline in sales justifies repealing its "strong sell" rating on the stock, nearly doubling Harley's target price to $26, and putting the stock in "neutral."

I disagree.

Let's go to the tape
Listen, Fools, I'm not going to sit here and tell you Citi is a terrible analyst. It's not. The banker's record of roughly 50% accuracy on its recommendations over the past three years demonstrates solid mediocrity.

Citi has occasional flashes of brilliance -- its prescient pick of Baidu (Nasdaq: BIDU  ) to outperform two years ago has paid off handsomely. Last year's recommendation to buy Rio Tinto (NYSE: RTP  ) worked out even better, almost tripling in nine months. But when you lift the hood and start rooting around in the auto and auto parts industries, Citi's no better at picking out car parts than any other bits and pieces of the market:


Citi Says:

(out of 5):

Citi's Pick
S&P by:

BorgWarner (NYSE: BWA  )



10 points

Ford (NYSE: F  )



(37 points)

Goodyear Tire (NYSE: GT  )



(13 points)

American Axle & Manufacturing (NYSE: AXL  )



(45 points)

True, this banker was right last year when it warned that HOG would get slaughtered -- a thumbs-down on Harley earned Citi 23 points. But everywhere else you look in the auto industry, Citi seems to be guessing just like the rest of us. And this time, Citi is guessing wrong.

I'll bite. Why?
Two reasons. First, the valuation. Assigning a "neutral" rating to the stock, Citi's saying it's safe to own Harley today -- and at only 15 times trailing earnings, maybe you're inclined to agree.

But consider that most analysts expect Harley to grow at less than 10% per year over the next five years -- and even this slow-growth figure looks increasingly doubtful the longer Harley posts decline after decline. And while Citi thinks Harley will earn $1.20 next year, its decision to slap a $26 price target on the stock suggests that Citi thinks you should pay up to 22 times earnings for sub-10% growth.

Fools, Citi is out of its ever-loving mind if it thinks 9.5% growth justifies a 22-times multiple. But the route by which Citi arrives at this conclusion is just as crazy.

In August, as the national unemployment rate closed to within spitting distance of 10%, and while those people who still had a paycheck were busy crunching numbers and crushing clunkers, Citi believes that motorcycle sales revived. It defies common sense to think that people were scorning $4,500 payouts from the government and buying bikes instead, right in the middle of Detroit's going-out-of-business sale. Yet according to Citi, this is just what happened: Cash for Clunkers notwithstanding, Citi thinks August was the month in which Harley "turned the corner."

Foolish takeaway
Personally, I think the best we can hope for is that Harley tapped the brakes before hitting the wall, but that's just my opinion.

I freely admit that I could be wrong about all this. Nearly two-century-old Citi's been in the investing game a whole lot longer than I have. It certainly has access to information that I do not. And if I'm wrong about Harley, I'll willingly eat crow and admit my mistake in big, bold letters when Harley reports earnings next month.

But for now, my money's on common sense -- and nowhere near Harley-Davidson's stock.

Baidu is a Motley Fool Rule Breakers recommendation. BorgWarner is a Stock Advisor selection.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating about stuff he does understand under the handle TMFDitty, where he's currently ranked No. 560 out of more than 140,000 members. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2009, at 3:28 PM, HarleyRider103 wrote:

    Your right on the money!!!

    I own a 2008 Harley ( 30K plus)

    I'm in the Harley dealership here alot, ( getting the oil changed, whatever talking to my friends) and I see alot of un-sold 2009 bikes still on the floor, with little room for the 2010!

    Bike sales are down, and so is the sales of all the bling!

    if the HOG stocks are over 10 bucks, your over paying for that ride !

    Later Guys

  • Report this Comment On September 08, 2009, at 4:25 PM, redstoneal wrote:

    Well i gotta agree with harley103 but from my prospective, I belong to quite a few M/C clubs, but I think its the overall attitude people have learned on value of the buck, no debt is great and ego is only so good. The metric bikes are great values, sound good and still have wind in your face...I am pricing a new bike as are others, just like cars with the clunkers buyers going metric, so will bikers, just on value.

  • Report this Comment On September 08, 2009, at 5:35 PM, Turfscape wrote:

    Gee, a terrible economy, people bought fewer motorcycles. Must mean that Harley is doing something wrong. Except that they've increased market share during this slide. every other motorcycle manufacturer is doing worse. Sounds to me like even in a deep recession with high unemploment, there's still pent-up demand for these machines.

    Anecdotal evidence (small sampling of local news stories over the labor day weekend) has the dealers upset that they're being limited in their bike orders. Many feel they won't be able to order enough 2010 models to meet their customer demands. Yes, there are still 09s on the floor, but it sounds to me like Harley has made the right moves in reducing production to clear inventory. All while remaining profitable no less.

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