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.

It never rains, it pours
The old saw on how bad news comes in buckets has never been more apropos than today, as Teutonic megabanker Deutsche Securities plays the latest requiem for the solar industry. Whether you own Canadian Solar (Nasdaq: CSIQ  ) Energy Conversion Devices (Nasdaq: ENER  ) , First Solar (Nasdaq: FSLR  ) , Sunpower (Nasdaq: SPWRA  ) , or Suntech Power (NYSE: STP  ) , Deutsche sees your prospects as mostly cloudy, with a chance of torrential rains.

Citing "deteriorating fundamentals ... significant module [average sales price] declines ... a strengthening dollar with respect to the euro, and ... restricted access to capital," Deutsche recommends treating solar stocks as "trading vehicles" -- and trading out of the lot of 'em today.

Let's go to the tape
That would have been fine advice months ago, before the whole dang industry went nova. But is today, with stock prices in the cellar, really the time to exit? I'm not so sure. Judging from Deutsche's record as a stock picker, in fact, you might even think that now's a good time to take the downgrades as a contrarian indicator -- and buy.

We've been tracking Deutsche's performance on CAPS for more than two years now, you see, and to put it politely, we're not impressed. That's because 55 times out of 100, when Deutsche tells you to sell, you're better off buying. So 55% of the time that it tells you to buy, you'd best keep your wallet in your pocket. Here are some examples:  

Company

Deutsche Said:

CAPS Says (Out of 5):

Deutsche's Pick Lagging S&P by:

MEMC Electronic

(NYSE: WFR  )

Outperform

****

34 points

ReneSola (NYSE: SOL  )

Outperform

*****

35 points

As you can see, Deutsche's record on solar power plays leaves much to be desired. What are the chances that these mistakes were mere aberrations, that Deutsche is actually a closet genius on solar?

Not bright
Well, consider. For all the mud being hurled on the solar panelists these days, the Wall Street consensus continues to call for no less than 30% annual growth in the stocks that Deutsche panned this morning. First Solar in particular is expected to grow in excess of 50% per year ... for the next half-decade!

Yet several of these stocks trade for trailing price-to-earnings ratios of 40 or less. Suntech in particular -- a recommendation at Motley Fool Rule Breakers ­-- carries only a 10 P/E. If the growth estimates prove anywhere near to correct, then long-term, this industry is nothing less than a screaming buy at today's prices. Yet Deutsche wants you to ignore this and chase niggling short-term, in-and-out profits?

Foolish takeaway
That's not Foolish, people. That's just plain foolhardy.

Fool contributor Rich Smith owns no shares of any company named above. You can find him on CAPS, pontificating under the handle TMFDitty, where he's ranked No. 1,395 out of more than 120,000 members. Suntech Power is a Motley Fool Rule Breakers pick. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (5)

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.

  • Report this Comment On November 10, 2008, at 5:05 PM, paultaut wrote:

    Election is over, Tboone's CLNE looks like its headed for a $1 and the Solars are on the backburner again. They will go up eventually, but I expect to see previous lows to be retested before they finally stabilize enough to start a new base.

    Mutual Fund redemptions are not over, some Hedge Funds will still implode and tax loss selling may come earlier than later.

    That having been said, if you still have any money to invest and Must have a Solar in your portfolio, buy married puts so you can sleep at night. FSLR downgrades will continue for no other reason than there weren't any when it was around $300. Analysts are playing catch up. Its the final acceptance of what has already occurred. Once they have finished assaulting the sector, it will be up to the individual solar companies to prove themselves.

    If you can't be good, lets all be lucky.

  • Report this Comment On November 10, 2008, at 11:04 PM, qqq888 wrote:

    I am a holder of STP for several month. This stock has been taken so many downgrade recently, I really wonder what is the purporse of those analyst, it doesn't look like due to real analysis. How can we find out and may be use leagal way to deal with them? If there is no any regulation to analyst, and they are so free to issue rumor, I will never touch any individual stock. It's such a pain to deal with analysts.

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