This Just In: Upgrades and Downgrades

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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:

Stock	Citi Says:	CAPS Says (out of 5):	Citi's Pick Beating/(Lagging) S&P by:
BorgWarner (NYSE: BWA)	Outperform	***	10 points
Ford (NYSE: F)	Underperform	**	(37 points)
Goodyear Tire (NYSE: GT)	Outperform	**	(13 points)
American Axle & Manufacturing (NYSE: AXL)	Outperform	*	(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.

Ridiculous
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.