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 ...
Like teens experiencing their first high-school crush, there's nothing as cute as bankers in love -- the latest instance of which was published in the "Commitments" section of yesterday's edition of Briefing.com. There we learn that the dashing European prince of investment banking, Collins Stewart, is on the hunt for an American sweetheart.
Why should we care? Why has The Bachelor survived 14 seasons on ABC? I guess Americans just love a good love story. Problem is, Collins is experiencing a real dilemma, trying to devise which girl to present with a rose this week. Will it be New York debutante JPMorgan Chase
Or will Collins choose one of its new crushes, announced yesterday: Regions Financial
No one knows. What we do know, however, is that when it comes to flights of investing fancy, Collins has proven itself an inexpert judge of (financial) character, guessing wrong on its picks more often than right:
Stock |
Collins Says |
CAPS Says |
Collins's Picks |
---|---|---|---|
Fifth Third Bancorp |
Outperform |
** |
26 points |
SunTrust |
Outperform |
** |
7 points |
JP Morgan |
Outperform |
*** |
(13 points) |
Zions Bancorporation |
Underperform |
* |
(10 points) |
Bank of America |
Outperform |
*** |
(8 points) |
Within the Commercial Banking sector, Collins's recommendations only "work out" about one time in three, for investors who follow its advice. Meanwhile, when it comes to Diversified Financial Services such as B of A and JP provide, the analyst boasts a perfect record ... perfectly wrong, that is.
All of which is my way of saying that, when Collins Stewart tells you it sees these banks' credit quality and capital heading for a "more favorable outlook," predicts "commercial real estate will be a more manageable event over the course of 2010," and argues that "early stage loan delinquencies are expected to post declines," well, you might want to take such predictions with a dash of salt.
And when Collins makes the incredible assertion that bank earnings this year will rebound 50% to 75% -- beware bankers bearing promises that sound too good to be true.
Because they probably are.
Foolish takeaway
Will banking profits surge 50% and higher in 2010? Sure, I suppose it's possible -- but it depends largely on how you define the word "profits."
Among the seven banks named above, only three -- JP Morgan, First Third, and Wells Fargo -- reported any net profit whatsoever last year. So projecting 50% surges in "profits" at any of Zions, SunTrust, Regions, or B of A requires that you take a liberal interpretation of the word. Talk about gross profits, operating profits, or the ever-popular and ultra-malleable EBBS metric* -- just don't talk about GAAP net income rising 50% or more at these banks.
*By the way -- are you still wondering about EBBS? It means: "Earnings Before Bad Stuff."