Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



This Just In: Upgrades and Downgrades

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

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." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the best...
Over the first 30 days of 2012, Bank of America (NYSE: BAC  ) has added 30% to its market cap -- about $17 billion. Not bad for a month's work, but if you ask the analysts at Goldman Sachs (NYSE: GS  ) , B of A has run up too far, too fast. (And they should know. Goldman itself has tacked on nearly 24%!)

So what did Goldman do? Same as you or I should do with an investment that has performed well. It crunched some numbers and tweaked its portfolio to shift its money into stocks that had the most potential to go up some more. Specifically, Goldman ratcheted back its rating on B of A from buy to neutral. Conversely, Goldman upped its ratings on Citigroup (NYSE: C  ) and Morgan Stanley (NYSE: MS  ) -- up "only" 17% and 23%, respectively -- to buy. Curiously, Goldman rounded out its list of America's biggest bankers by removing JPMorgan Chase's (NYSE: JPM  ) coveted "conviction buy" rating. This despite the fact that JP has gained only 13%. (Goldman still thinks the stock is worth owning, though.)

What's behind the ratings moves? Well, in B of A's case, the answer is simple: It's run up the farthest, and now that investors are pretty sure the bank will pass any stress tests with ease, Goldman doesn't see any further catalysts to lift the stock. Yes, B of A is cutting costs, but Goldman worries the bank has passed the point of diminishing returns, and warns that any cost-cutting B of A does from this point forward "will result in continued reduction to its earnings power." (A similar argument is raised against JP, which Goldman perversely warns has "outperformed" in several of its business units recently -- leaving less upside to be gained from bad units turning good.)

Citi, on the other hand, does have catalysts to work with. It could soon win permission from the Feds to increase its dividend payout -- perhaps to as much as $0.40 to $0.50, according to Goldman. Such a dividend, worth 1.6% on its own, could be combined with the potential for share buybacks (which Goldman predicts will amount to $3 billion to $4 billion in value) to create a "4.3% effective yield this year."

Finally, Goldman gave Morgan Stanley a strong endorsement (the more significant as Morgan and Goldman are fierce rivals in the market for taking companies public, as in the imminent Facebook IPO). Says Goldman: "With the stock currently trading at around 65% of tangible book value, we believe the risk/reward is skewed favorably for MS." 

Let's go to the tape
Is Goldman right about all this? It's possible -- although I have to say that a lot of its sunny talk rings hollow, and I'd prefer to hear the analyst spend more time gauging the banks' exposure to Europe. But on the surface level, at least, Goldman is right that a lot of these stocks look attractive. Let's take a quick look at the numbers -- and just for fun, let's throw Goldman itself into the mix, and see how it stacks up against the competition.



Growth Rate

Price-to-Book Value

B of A 707.0 15.5% 0.35
Goldman 24.3 12.2% 0.85
Morgan Stanley 14.8 9.0% 0.59
JPMorgan 8.3 7.6% 0.80
Citi 8.2 11.1% 0.51

P/E and growth rate data courtesy of Yahoo! Finance; free cash flow from S&P Capital IQ.

What do these numbers tell us? Well, right off the bat I'd say that Bank of America's valuation of 707 times trailing earnings suggests Goldman's right to be cautious about that one. Sure, B of A has the lowest P/B of the bunch. But if its assets can't earn a decent profit, how much are they really worth?

On the other hand, I'm not quite so sanguine about Morgan Stanley's chances, as Goldman is. Fifteen times earnings seems quite a pretty penny to pay for 9% earnings growth. (On the other hand, Goldman itself costs far more than Morgan Stanley.)

JP Morgan? I don't think I'd be too quick to write this one off. Not at a valuation of just eight times earnings, and with a growth rate nearly equal to that. (Then again, Goldman did say it was still a buy. It's just a less convincing buy than it used to be.)

And last but not least: Citi. Here I've got to agree with Goldman again. Eight times earnings for an 11% grower? If it weren't for Europe -- and credit default swaps, derivatives, and the whole host of other unknowns that make up banking balance sheets post-crisis -- I might even be tempted to buy that one myself. As it is, about the best I can say for Citi is that it looks like the least risky bank of the bunch.

Have you been burned by the financial sector before? Not quite ready to jump back into risky stocks just yet? Can't say I blame you. In fact, maybe a better idea is just to stick with some nice safe dividend stocks for now. Read our new report (it's free, by the way), and we'll tell you all about 11 companies we've found with rock-solid dividends.

The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase, and Motley Fool newsletter services have recommended buying shares of Goldman Sachs, but Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 353 out of more than 180,000 members. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1769435, ~/Articles/ArticleHandler.aspx, 10/24/2016 9:49:44 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 33 minutes ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
BAC $16.77 Up +0.10 +0.60%
Bank of America CAPS Rating: ****
C $49.58 Up +0.01 +0.02%
Citigroup CAPS Rating: ***
GS $175.12 Up +0.45 +0.26%
Goldman Sachs CAPS Rating: ***
JPM $68.87 Up +0.38 +0.55%
JPMorgan Chase CAPS Rating: ****
MS $33.38 Down -0.06 -0.18%
Morgan Stanley CAPS Rating: ****