Who Should You Trust: Main Street or Wall Street?

When you're looking to research a stock who should you listen to, Wall Street or Main Street? Wall Street has its analysts and they don't have a good track record. They are known to be short-sighted, overoptimistic, and never negative (seriously, when was the last time you saw something with a sell rating?). Savvy investors read their research but ignore their buy and sell ratings. So who can you trust?

At Motley Fool CAPS we use the collective opinion of 165,000 investors (Main Street) to inform our stock ratings. Members are scored on their accuracy and overall outperformance of the S&P 500. We then aggregate all the ratings such that members with higher scores have more influence on a stock's CAPS rating. This gives us some of the best ratings around.

Let's look at a few stocks:

Source: Yahoo! Finance.

Altria

Altria is perhaps less well known than its spinoff Phillip Morris International (NYSE: PM), which was the international side of its cigarette business. Both have dominant market shares in their respective markets.

Many investors have moral issues investing in cigarette companies, which make the shares perpetually cheaper than they should be. Altria originally tried to overcome this in 2003 by changing its name from Phillip Morris. Altria also used to own Kraft (NYSE: KFT), but spun off Kraft believing the company would be worth more on its own, without the overhang of the cigarette business holding it back.

Baidu

It is amazing that Wall Street still rates Baidu a buy. Investors on CAPS have had a much more sober opinion of Baidu as it has been overvalued for at least a year. Nothing stops stocks from becoming more overvalued though. In January, when Google (NYSE: GOOG) announced it was thinking of leaving China, Baidu shares took off. Baidu recently announced it did not expect huge gains, should Google completely leave. Now trading at 95 times earnings, the stock should be attracting only the most fearless investors. However I wouldn't short Baidu; there is one big rule of shorting: Never short on valuation. Baidu could easily double to Chinese real estate market levels before it crashes.

Activision Blizzard

Wall Street and Main Street agree that Activision Blizzard is undervalued. The video game industry used to be thought of as recession proof, but that idea was shattered in this past recession. While not recession proof (oh well), video games are still one of the better industries in the world. Of the major video game studios, Activision Blizzard is one of the best, known for its Call Of Duty, World Of Warcraft, and Guitar Hero franchises. With brands this strong, Activision Blizzard is sure to be a long-term winner.

Given Wall Street's perpetual bullishness on virtually every stock out there, shouldn't you turn to the completely free CAPS, which harnesses the wisdom of the crowd to rate stocks?