This Just In: Upgrades and Downgrades

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 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 ...
When a stock has already doubled in price over the course of a year, is it time to cash out and count your winnings? One of Wall Street's Best stock shops says, "No." To the contrary, BMO Capital Markets thinks the 110% run-up in Apple's (NASDAQ:AAPL) stock price that we've seen over the past 12 months is just the beginning. Citing share gains in the PC market, the potential for beaucoup profits from iPhone, and even more products on the horizon, BMO expects to see Apple shares top $180 per stub over the course of the next year.

So, is BMO greedy, a genius, or a little bit of both? For clues to the analyst's prescience, we turn to CAPS for a glimpse at its record.

What we find is that, with a 95.69 CAPS rating, BMO ranks as one of the top stock shops on Wall Street. The firm gets 57% of its stock picks correct, including such genius calls as:

Of course, that 57% record for accuracy necessarily implies a 43% record for inaccuracy. And we can see that BMO has made its share of mistakes as well:

Based on BMO's record alone, an investor has good reason to be bullish on Apple today. When a great analyst says a stock is great, too, you should listen carefully.

And the valuation? Sure, Apple's P/E ratio of 44 is patently absurd, but it's not the whole story, either. Valued on its cash profits rather than its accounting profits, Apple looks a whole lot cheaper. With $4.2 billion in trailing free cash flow, the stock trades for a much more reasonable 32 times cash profits.

Foolish takeaway
I still don't think that today's price is a bargain, given that most analysts expect the firm to grow its profits at less than 24% per year over the next five years. But if Apple lives up to the hype and achieves the kind of growth that analysts like BMO predict, then, yes -- it just might deserve its premium price.

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