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'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.

If at first you don't succeed ...
Throw more money down the hole. That appears to be the philosophy that Janco Partners is espousing this week. As you may recall, Janco on Friday placed a high-risk bet on high-wire power play American Superconductor (Nasdaq: AMSC). Janco wagered that Super's Q1 2008 earnings report would prove critics wrong. Wagered ... and lost.

Big time
On Tuesday, Super reported a doubling of Q1 sales, rising backlog, positive free cash flow of $1.6 million, and improved gross margins. Unfortunately, it also reported a larger loss than investors had bargained for, and promised to lose even more over the course of this year. Result: A decidedly un-super 20% decline in the stock price.

Oops
Big oops. But you have to admire the analyst's pluck. Losing 27 points to the market in six days doesn't seem to have fazed Janco one bit.

Either that, or it's been more than fazed -- driven absolutely batty by the shock -- because yesterday Janco doubled down on its bet, and upgraded the stock from "accumulate" to "buy." (I'm still waiting for someone to explain how I can accumulate shares without buying them. Once I figure out that trick, I'll retire a rich man.)

According to Janco, the "market's overreaction to the Company's earnings result has created an attractive entry point and a solid profit potential relative to our price target." (They predict $38, as if that matters.)

Way to go, Janco
Now I know that it's been only a few days since I wrote: "the company's sales doubled last year, it still has neither profits nor positive free cash flow, so I don't see much of a valuation argument to make." On Monday, I basically dismissed Janco's faux-buy rating as a risky gamble on a short-squeeze -- that we now know failed to pan out.

But based on the numbers Super put out Tuesday, and in honor of the Olympics, allow me to now execute a midair, 179-degree reversal of my previous conclusion. You see, the facts have changed, and with them, my opinion.

As of today, Super has generated operating cash flow -- for the first time in nearly a dozen years. What's more, it's generated positive free cash flow for the first time ever. Perhaps most important of all, Super CEO Greg Yurek is delivering on his promise to quit burning cash.

Sure, Super faces stiff competition from the likes of GE (NYSE: GE) and Siemens (NYSE: SI). Sure, $1.6 million isn't a lot of lucre to support Super's $1.3 billion market cap. But that's not the point. The point is that Super has proven to us that, given sufficient sales, it is capable of earning free cash flow, and not just burning cash from here to infinity.

So, $40 million in revenues was enough to enable Super to have positive operating cash flow in Q1. And with a stable of solid customers, ranging from AEP (NYSE: AEP) to ConEd (NYSE: ED) to Northeast Utilities (NYSE: NU) to Micron (NYSE: MU), having placed orders for $634 million worth of new gear, I see at least a chance that Super can capitalize on its potential, and generate more cash in years to come.

Here's hoping I'm right, and here's hoping Janco will find its faith in the company rewarded.