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.

And speaking of the best ...
Early this morning, shares of blue collar for-profit educator Universal Technical Institute (NYSE:UTI) got a bit of extra credit from the analysts at SunTrust Robinson Humphrey. It's not doing a whole lot for the shares, however, which are trading down even as the markets generally are enjoying a green day. Why is that?

Partly, I suspect it's because no one quite knows what caused SunTrust to up its rating to "buy." News reports are silent on the subject. Briefing.com, the premier tallier of Wall Street's buy/sell vacillations, simply states the upgrade as a bald fact. And without context, it's hard for an investor to know how to react to an analyst's bare "buy" or "sell" rating.

That's where we come in. At Motley Fool CAPS, we aim to hold Wall Street responsible for its past picks and at the same time give you the necessary context in which to view current ratings. All other things remaining equal, you'll probably want to give upgrades more weight when they come from bankers with good records at picking stocks.

Let's go to the tape
Unfortunately, SunTrust isn't one of those "good bankers." Or at least it isn't today. The last time we checked in, back in March, SunTrust ranked among the best stock pickers on the Street, but as the muse sang, the times they are a-changin'. Today, SunTrust's 55.32 CAPS rating barely gets it into the top half of CAPS players. Meanwhile, its 45% accuracy record shows that the firm gets more calls wrong than right. For example:

Meanwhile, glimmers of SunTrust's more glorious days of March can be found in picks such as these:

SunTrust clearly has the potential to excel. Its fall in the rankings undoubtedly relates in part to CAPS' own rise in popularity -- the more people running a race, the harder it is to stay ahead of them all. But also crucial to SunTrust's early success in CAPS was its sterling record for accuracy -- back then, the banker was getting two of its calls right, for every one mistake.

Will the banker's contrarian call in favor of hard-hit Universal Technical help to fuel SunTrust's return to the upper ranks of CAPS? I certainly wish SunTrust well with its pick, but I fear the opposite will happen. As I described in last week's "Failing Grades at Universal Technical," the hoped-for turnaround at this company has taken an incomplete, and I'm not at all certain it will be reenrolling for the spring session. Cash burn has accelerated at the company, as it continues to build classrooms but fails to find students to pay for them. Until Universal Technical shows it can face up to the lack of interest and scale back its expansion program (or even divest assets), I can't be optimistic about its prospects -- and I see no reason to rate it a "buy."

Caveat investor
That said, I'd be remiss if I failed to point out that here at the Fool, we, too, have recommended Universal Technical to members of our premier small-cap investing newsletter, Motley Fool Hidden Gems. What's more, we've recommended it twice now. I'm always leery betting against Tom Gardner -- and with his record of outperforming the S&P by 32 points since Hidden Gems opened for business, wouldn't you be? -- but in this one instance, I think both Tom, and SunTrust, are mistaken in endorsing UTI.

We have no way of knowing why SunTrust likes UTI, but anyone interested can learn Tom's thinking on the stock. Take a free, 30-day trial to Hidden Gems, and find out why he loves it.

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. 237 out of more than 60,000 rated players. GameStop is a Stock Advisor recommendation. LoopNet is a Hidden Gems selection. The Fool has a disclosure policy.