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'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
Motorola's (NYSE:  MOT) announcement Wednesday that it will lay off 4,000 workers in an attempt to right its ship sparked the expected reaction on Wall Street ... and also the unexpected reaction. Megabanker JPMorgan applauded the flurry of pink slips and promptly upgraded Motorola's stock to "overweight." Peering across the Atlantic, though, Barclays Capital took a more jaundiced view of Motorola's news -- and downgraded the stock from overweight to equal weight.

Judging from the movement of Motorola's stock price (up 8% on the day), it's pretty clear which banker investors were listening to yesterday. But the verdict from CAPS is a bit murkier.

Let's go to the tape
Viewed from the perspective of their overall CAPS ratings, Barclays clearly outclasses JPMorgan; fewer than half of JPMorgan's recommendations outperform the market, and the banker ranks in the bottom half of CAPS. In contrast, Barclays ranks as one of "Wall Street's Best" stock pickers, with 60% of its recommendations beating the market. So far, so good.

But things get confusing when we drill down to the bankers' respective performance in the communications sphere. Here, the advantage shifts decidedly in JPMorgan's favor:

Company	JP Said:	CAPS Says (Out of 5):	JP's Pick Beating S&P by:
Palm (Nasdaq: PALM)	Outperform	*	47 points
Qualcomm (Nasdaq: QCOM)	Outperform	****	27 points
Nokia (NYSE: NOK)	Outperform	****	11 points

Sure, Barclays is no slouch, of course. But its record just can't match JP's:

Company	Barclays Said:	CAPS Says:	Barclays's Pick Beating (Lagging) S&P by:
Silicon Laboratories (Nasdaq: SLAB)	Outperform	***	25 points
Apple (Nasdaq: AAPL)	Outperform	***	6 points
Ciena  (Nasdaq: CIEN)	Outperform	***	(3 points)

So who's right on Motorola?
Actually, listen to 'em both. If you ignore how they couch their words (overweight, underweight, and so on), and focus on what the analysts are actually saying, I think you'll find that both JPMorgan and Barclays largely agree on Motorola's long-term prospects.

Take the optimistic JPMorgan, for example. JPMorgan expects that we'll see "dismal" results out of the cell-phone maker for the next two to three quarters. Yet the banker upgraded the shares regardless, based on the quintessentially Buffett-esque reasoning that however investors react to bad news out of Motorola today, ultimately, the market will assign the shares a price close to their intrinsic value. According to JPMorgan, a "sum-of-the-parts calculation [of that value] comes with a valuation of $7 a share."

And the less enthusiastic Barclays? The Brit banker, echoing JPMorgan's short-term pessimism, knocks a few cents off of its earnings estimate for Q4 and drastically cuts expectations for fiscal 2009 profit. Regardless, Barclays says it is "optimistic about a potential long-term recovery in [Motorola's] handset unit, but that it is unlikely to happen for at least 6-9 months."

In case you missed the echo: six to nine months equals two to three quarters. In other words, these analysts are saying the same thing -- they're just calling it by different ratings names.

Foolish takeaway
So where does this leave us? The upshot is that Motorola will produce some pretty ugly results over the next several quarters. It's going to keep on losing money. It will quite likely continue burning cash. And it's going to look awfully expensive, what with the forward price-to-earnings ratio already cruising at a nosebleed altitude of 74 right now, and the "E" part of that equation getting weaker by the day.

Ultimately, though, someone is going to figure out a way to unlock the value inherent in Motorola's assets. Do you have the patience to wait through several quarters of incessantly ugly news in anticipation of that turnaround?

Seriously, folks, if you think Motorola's worth the wait -- and did I mention it's paying almost a 5% dividend? -- come on over to Motley Fool CAPS and tell us why.

Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team are accepting new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.