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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 ...
For an industry so often described as cyclical -- a term ordinarily referring to multiyear trends up and down -- it's surprising how often America's oil refiners get themselves upgraded and downgraded. Why, I myself have written about the ups and downs of Valero (NYSE: VLO  ) three times already this year ... and now it's time for a fourth.

Bright and early this morning, stock shop Soleil issued the latest downgrade against Valero -- and peer petrol producer Sunoco (NYSE: SUN  ) as well. Formerly considering both companies to be "buys," the analyst now thinks you should just hold on to them. Why the downgrade? Who knows?

All too often when we see these upgrades and downgrades scroll across our ticker feeds, no context is added, no clue given to the thinking behind the decision. It's all a bit frustrating to the ordinary investor, who's being asked to take the analyst on faith. Fortunately, with the advent of Motley Fool CAPS, we no longer have to heed the plea "Just trust us." Today, we can check the analyst's record -- to steal a phrase from President Reagan, we can "trust, but verify."

Let's go to the tape
So let's do that. Turning to CAPS, and pulling up Soleil's record, I must say I'm less than impressed at the firm's past stock-picking prowess. With a CAPS rating of just 50.55, Soleil makes the top half of investors by the skin of its teeth. More worrisome still, the firm's accuracy record of just under 46% tells us the advice given by this firm is usually wrong. For example:


Soleil Says:

CAPS Says (Out of Five):

Soleil's Pick Lagging S&P By:

Southwest (NYSE: LUV  )



17 points

H&R Block (NYSE: HRB  )



13 points

Wells Fargo (NYSE: WFC  )



10 points

Yet take a look at a few of its winning picks.


Soleil Says:

CAPS Says:

Soleil's Pick Beating S&P By:

Pacific Ethanol (Nasdaq: PEIX  )



53 points

VeraSun (NYSE: VSE  )



43 points

Wind River Systems



27 points

Now, I know there's a difference between the markets for alternative energy and plain ol' petrol. Still, it seems to me that skill in one sphere should translate at least somewhat into skill in the other. The fact that one of the few areas where Soleil knows its stuff -- grain-based fuel -- provides a bit of leavening to the rather flat bread Soleil's been baking overall.

What has me flummoxed, though, is why a firm that seems to know so much about energy thinks you shouldn't own a pair of stocks (Valero and Sunoco) that are trading at single-digit price-to-earnings ratios and expected to grow their earnings at double-digit rates over the next five years. From my perspective, that smacks of a short-term "timing" strategy. Maybe Soleil expects weakness in the refining sector in the near term and hopes to gather some brownie points calling that weakness now -- only to raise its rating in a few months.

If that's Soleil's game, I would think it a sucker's bet. With supremely cheap valuations (both stocks bear PEG ratios of less than 0.5), both Valero and Sunoco look like long-term buys to me. If you agree, I'd forgo Soleil's timing tricks and look into buying these two to hold for the long term.

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Related Tickers

10/21/2016 4:01 PM
SUN $29.32 Up +0.27 +0.93%
Sunoco CAPS Rating: ***
VLO $55.76 Up +0.99 +1.81%
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HRB $23.39 Up +0.10 +0.43%
H and R Block CAPS Rating: ***
LUV $42.43 Up +0.14 +0.33%
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VSE $0.28 Down +0.00 +0.00%
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