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 ...
Just two weeks ago, we regaled you with the story of how the top-rated Wall Street firm (as calculated by CAPS) was bucking the Wall Street tide and rating plastic-meister MasterCard (NYSE: MA) a buy. Well, second verse, same as the first, folks. Yet another of the better professional stock-pickers out there just chimed in, and guess what -- it likes MasterCard, too. Yesterday, AG Edwards upped its rating on the card shark from "hold" to "buy."

Why? No one's quite sure, since the firm is playing its cards close to the vest. The financial press reported the upgrade but told us nothing about the rationale. Even Briefing.com, the premier tallier of Wall Street's buy/sell vacillations, simply states the upgrade as a bald fact. Lacking context for the upgrade, it's hard for an investor to know how to react to an analyst's "buy" or "sell" rating -- but that's where we come in.

At Motley Fool CAPS, we aim to hold Wall Street responsible for its past picks and 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
Fortunately, AG Edwards is indeed one of these "good bankers." It carries a respectable 88.23 CAPS rating, good enough to earn it "All-Star" status. And in contrast to many investment bankers, AG Edwards actually gets more of its calls right than wrong. (If just barely.) Reviewing the firm's record, we find it's done pretty well with:

Company	AG Edwards Says:	CAPS Says (Out of 5):	AG Edwards' Pick Beating S&P by:
Lennar (NYSE: LEN)	Underperform	*	39 points
EMC (NYSE: EMC)	Outperform	****	28 points
Jack Henry (Nasdaq: JKHY)	Outperform	****	28 points

Yet as I mentioned above, AG Edwards only "barely" gets more picks right than wrong. In fact, its accuracy is just a few tenths of a percentage point above 50/50 -- thanks to calls like these:

Company	AG Edwards Says:	CAPS Says:	AG Edwards' Pick Lagging S&P by:
Lowes (NYSE: LOW)	Outperform	***	17 points
Legg Mason (NYSE: LM)	Outperform	***	18 points
Home Depot  (NYSE: HD)	Outperform	**	15 points

Judging based on AG Edwards' accuracy alone, an investor could be forgiven for thinking it's a bit of a crapshoot whether the company is calling it right on MasterCard. So to add even more context to help you decide what to do about the upgrade (or, perish the thought, confuse matters even further), let's add two more bits of data to the mix.

At Motley Fool Inside Value, deep value-seeker Philip Durell recommended MasterCard to our subscribers back in June of last year -- and the stock has more than tripled since. (Does Philip still think it's a buy? Only Inside Value members know the answer to that question. Become one -- at no cost or risk for 30 days -- when you take a free trial of the service, and check out Philip's latest thoughts on the stock.)

Meanwhile, back at MasterCard itself, a half-dozen C-level execs, including CEO Robert Selander himself, just yesterday filed notice with the SEC that they intend to sell as many as 230,173 shares of stock "for personal financial management purposes." Is there more to this story? Visit MasterCard's CAPS page, and tell us what you think.

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. 210 out of more than 60,000 rated players. Legg Mason and Home Depot are Inside Value newsletter recommendations. The Fool has a disclosure policy.