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 tell you what the analysts said, and stop there. No, we're here to hold Wall Street to account. We're going to tell you what the analysts said ... and then show you whether they know what they're talking about. Helping us in this endeavor will be Motley Fool CAPS, our tool not only for rating stocks, but also for rating the analysts who rate stocks. 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 ...
Yesterday morning, Wachovia upgraded the stock of khaki clothier Gap (NYSE:GPS) from "market perform" to "outperform." In so doing, Wachovia restored to the retailer a "buy" rating it hasn't held for more than 18 months. The rationale? Pretty much the same stuff that everyone -- from Wall Street analysts to us here at the Fool -- has been saying for years: "It's got potential."

According to Wachovia, Gap has improved its wares at Old Navy and GapKids, a situation that might generate stronger sales this spring season. Other "mights" include the potential for additional cost-cutting, the chance that Gap might introduce better products at its eponymous chain over the next 12 months, and the possibility that Gap will find some competent management -- eventually.

Sound like an awful lot of maybes to you? Yeah, to me, too. For that reason, Wachovia's endorsement wouldn't ordinarily give a lot of confidence -- but for one thing: These guys are developing a pretty good rep for picking winning retailers before everyone else notices the upside. For example:

On the flip side, Wachovia's list of worst picks, as recorded by CAPS, contains essentially no retailer recommendations. Instead, Wachovia has missed with underperform calls such as:

Of the above, Wachovia's pick of Zumiez in particular jumps out at me, because we profiled this very upgrade just two months ago. In the few weeks since Wachovia endorsed it, Zumiez has (with your forgiveness) zoomed an impressive 16 points past a stagnant S&P. In the process, it helped lift Wachovia's already sterling CAPS rating of 99.63 a further 0.15 points -- and made Yours Fool-y awfully proud of concluding that "I'd think twice before betting against [Wachovia's] latest prediction that Zumiez will outperform the market." I can't think of much better evidence for the usefulness of CAPS than the 16-point profit that investors might have reaped from reading this column back then.

Of course, I'd be remiss in not mentioning one final reason for respecting Wachovia's prediction about Gap's recovery. Actually, two reasons: Gap has been recommended by Motley Fool Stock Advisor, and by Motley Fool Inside Value as well -- two of our newsletters that are currently beating the market by 40 and 7 percentage points, respectively. To learn why the analysts at these publications both love Gap, claim a free trial subscription to either one right now.

Heck, go ahead and try them both. After all, free is free.

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 192nd out of more than 26,000 raters. Zumiez and Volcom are Motley Fool Hidden Gems choices. The Fool has a disclosure policy.