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This Just In: Upgrades and Downgrades

Anders Bylund
July 2, 2012

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." While the pinstripe-and-wingtip crowd is entitled to its opinions, down here on Main Street, we've got some pretty sharp stock pickers, too. (And we're not always impressed with how Wall Street does its job.)

Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We 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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Today, we're looking at a stock that gets plenty of love -- right along with a downgrade. What gives?

Cirrus Logic: Music to your ears?
The stock under the microscope is audio chip designer Cirrus Logic (Nasdaq: CRUS  ) . Analyst firm Oppenheimer just downgraded the stock from a "buy" to a "hold," but pours buckets of love over Cirrus all the same.

You simply don't see language like this in most downgrade notes:

Cirrus remains one of the best pure plays on the growth and success of Apple (Nasdaq: AAPL  ) . We continue to expect Cirrus to retain its sole-source position with Apple through at least 2012 while enjoying material content increase in upcoming devices. We believe [the June-ended quarter] is tracking in-line and that [the September-ended quarter] could grow 30%-plus [quarter-over-quarter].

If the company's near-term future looks so bright, why the glum rating? There's an explanation for that. Oppenheimer notes that shares have soared 88% year-to-date, leaving little room for further "upside surprises" at this point. "We believe risk/reward is balanced and are moving to the sidelines," the firm says.

Before digging into the value of these statements, let's have a look at Oppenheimer's track record. In our CAPS system, the firm carries a middling score of 66 out of 100. It gets about 44% of its ratings calls right -- but only 26% in the semiconductor segment.

In that sector, Oppenheimer has scored huge with a long-term call on Skyworks Solutions, but lost it all and then some on a bucketful of mistaken calls. Here's a sample of Oppenheimer's extremes:


Oppenheimer Rating

CAPS Rating
(out of 5)

Oppenheimer Beating S&P by

Skyworks Outperform **** 293%
FormFactor (Nasdaq: FORM &