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 worst and sorriest, too.

And speaking of the best ...
A couple of months back, I profiled a series of buy ratings issued in favor of Israeli wireless backhaul solutions provider Ceragon Networks (Nasdaq: CRNT  ) . Four investment bankers -- Banc of America Securities, Jefferies, Lehman Bros., and CIBC, all of which are tied to the company because of their underwriting of its recent 6-million-share follow-on stock offering -- collectively slapped their foreheads and exclaimed in unison: "We just noticed! Ceragon's a buy!"

Exercising the restraint of a saint, I refrained at the time from insinuating anything about the bankers' motives in issuing the upgrades. (Okay, I tried to refrain.) But even saints can be tempted only so far. When I saw Ceragon receive another upgrade on Friday (from yet another banker, this time Collins Stewart), I just had to check back in and see how these four analysts had fared with their picks.

Turns out, not well. As previously explained, CIBC's ratings are essentially invisible to CAPS. But as for the other three analysts -- B of A, Jefferies, and Lehman -- two months after recommending their sugar daddy, their picks are underperforming the market by 16 points each.

And now, back to our story
Apologies for the detour down memory lane. Today, we're actually going to be focusing on the most recent analytical Ceragon fan: Collins Stewart. Let's start with a look at where it's gone right in the telecom industry ...


Collins Stewart Said:

CAPS Says (out of 5):

Collins Stewart's Pick Beating S&P By:

Atheros Communications  (Nasdaq: ATHR  )



9 points

... and where it's gone oh so very wrong:


Collins Stewart Said:

CAPS Says:

Collins Stewart's Pick Lagging S&P By:

Alvarion  (Nasdaq: ALVR  )



1 point

Comtech Telecommunications  (Nasdaq: CMTL  )



3 points

Digi International  (Nasdaq: DGII  )



11 points

F5 Networks  (Nasdaq: FFIV  )



22 points

Comtech Group  (Nasdaq: COGO  )



37 points

After reviewing that record, I doubt you'll be overly surprised when I tell you that Collins Stewart sports a pretty lackluster record on CAPS. The analyst has only one pick out of those six right, and as of this writing, it boasts a negative CAPS score (meaning that as a group, its recommendations are collectively lagging the market in performance).

What may surprise you, however, is the fact that while its four better-known colleagues were busy angling for underwriting fees, Collins Stewart was writing up a sell recommendation on Ceragon. In October, Collins Stewart correctly predicted that the overpriced Ceragon would underperform the S&P 500 -- and through Friday, that prediction netted the analyst 37 points' worth of market outperformance. Seems to me that even if Collins Stewart isn't the sharpest tool in the telecom equipment drawer as a whole, it's at least got a good handle on Ceragon's business.

Foolish takeaway
Now, this doesn't mean I like Ceragon. Although it's true that Motley Fool Hidden Gems recommended the stock, for the life of me I can't figure out why. Its net earnings fell short of $1 million over the past year, and the firm's still burning cash. Not at all my cup of tea.

But it's hard to argue with success. The stock is up 71% over the past year, yet Collins Stewart somehow managed to find a way to succeed "shorting" it. Maybe these guys know something I don't. They sure as heck seem to know more about the company than anybody at B of A, Jefferies, or Lehman.

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10/21/2016 4:00 PM
CRNT $2.64 Down -0.04 -1.49%
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