Get to Know a Guru

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." In our recurring column "This Just In," we cover the most headline-worthy upgrades and downgrades, testing the analysts' logic and examining their records to help you decide whether they're worth listening to at all.

In "Get to Know a Guru," we go another route. Here, we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land. Up this week: Pali Research.

Profiles in punditry
An unfamiliar name (to me, at least) popped up on MSN Money's tally of analyst upgrades and downgrades yesterday. A firm called Pali Research was highlighted as upgrading to "buy" the stock of big-box electronic retailer Best Buy (NYSE:BBY). Now, if you're wondering just who the heck Pali is, and what Pali knows about the retail biz, well, you're not alone. Let's get to know this guru.

Pali Capital's history begins in 1995, when its current CEO, Brad Reifler, set up shop as "Pali Holdings." The firm's Pali Capital arm became part of Germany's European American Investment Group in 2001, and then left it five years later via a management buyout. As of today, Pali Capital is privately owned.

Perhaps owing to its European roots, Pali actually has more analysts focusing on foreign equities than on U.S. ones. But as the Best Buy recommendation proved, this New York-based firm doesn't ignore the States entirely. In fact, it has at least five analysts devoted to U.S. equities, focusing on the media, cable, telecom, homebuilding, Internet, and retail industries.

Are these guys any good?
So much for the firm's biography. What we really want to know about is its resume. When Pali speaks, should investors listen?

How to put this gently? Pali's analysts are a lot like American Idol's Sanjaya. They're probably very nice people -- they're just not yet performing very well at the job they're supposed to be doing. With a CAPS rating of 25.15, these professional analysts pick stocks less skillfully than your average CFA-less individual investor. Worse, they're getting their picks wrong more often than right (with an accuracy rating of just 40%.) Recent flubs include:

Of course, every dog has its day. Pali's good days occurred when it recommended:

Separating the analyst from the analyzed
Mind you, Pali could well be right in saying that Best Buy will outperform the market. In fact, over at Motley Fool Inside Value, we happen to agree with Pali on this one. Just last month, we recommended Best Buy to our members, citing the chain's "strong customer orientation," "high-end positioning" in the U.S. marketplace, and attractive post-sell-off price as just a few factors in Best Buy's favor.

With a price-to-earnings ratio comfortably below that of the broader S&P 500, but a growth rate that analysts expect to outperform that of the market, I think Best Buy does in fact look reasonably priced today, and ripe for a buy. All I'm saying is that you're better off evaluating the company on its merits and ignoring Pali's opinion.

If you'd like to hear from an investor with a truly stellar record of calling Best Buy right, click on over to the company's CAPS page. Just don't be surprised when you learn he (or is it she?) is not a professional analyst at all.

But if you're really and truly serious about investing in Best Buy, make sure to take advantage of our free, 30-day trial membership at Motley Fool Inside Value, and read Alex Dumortier's investment thesis before you do. When the price tag reads "free," you know you're getting a best buy.

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 ranked No. 302 out of more than 60,000 players. Best Buy, PetSmart, and Time Warner are Motley Fool Stock Advisor recommendations. Discovery Holdings is an Inside Value recommendation. Masco is an Income Investor selection. The Fool's disclosure policy is much nicer than Simon Cowell.