This Just In: Upgrades & Downgrades

At The Motley Fool, we have our share of fun with Wall Street analysts. We mock their pinstripe-and-wingtip attire. Their multimillion-dollar bonuses. And not unrelatedly, their failure to recognize the Tech Bubble -- or worse, their recognizing it, then applying lipstick and pimping it to the individual investor. What's more, their ceaseless stream of upgrades and downgrades, sometimes mere days apart on the very same stock, make Jim Cramer look like a poster boy for the "long-term buy and hold" movement.

As such, it may look a bit out of place for us to introduce this newest occasional feature: This Just In. Here, I'll be taking an ad hoc magnifying glass to some of the hottest analyst upgrades and downgrades of the hour.

Isn't that a little hypocritical?
If that were the only thing I'll be doing, I'd be guilty as charged. After all, an analyst's upgrade or downgrade of a stock means little when viewed in isolation. That's even more true when you consider the heft of the firms doing the "analyzing." When a major brokerage firm issues a downgrade, the mere publication of the news often sparks a selloff, "proving" the analyst right -- in the short term.

But the analyst's record over the long term is far more significant, and that's what we'll focus on in this column.

Mr. Market? Meet Mr. CAPS.
Motley Fool CAPS is the Fool's tool for rating everything from stocks to investors to analysts to the long-term durability of the Toyota Corolla (OK, maybe not that last one). CAPS lets us take a magnifying glass to the short-term meanderings of Mr. Market's mind, but it also helps us track the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

Speaking of the best ...
Yesterday, German giant Deutsche Securities upgraded the stock of BorgWarner (NYSE:BWA) to a "buy" rating-equivalent. According to Deutsche, President Bush's call for an improvement in automotive fuel efficiency (of roughly 4% annually over the next decade) probably isn't good news for Detroit's struggling Ford (NYSE:F) and GM (NYSE:GM). But it's great news for engine-efficiency expert BorgWarner, which will be helping those firms comply with the new standards.

Not long after Deutsche reversed its position on "the Borg," peer Lehman Brothers chimed in with its own rating: "neutral." Although Lehman agrees with Deutsche about Borg's growth prospects, Lehman believes that the shares have already priced in that growth.

So who's an investor to believe? Deutsche or Lehman? Let's examine the investment houses' respective track records. In one corner, Lehman sports a combined CAPS rating of 98.51 -- putting it in the top 2% of CAPS players. In the other corner, Deutsche's rated at 99.76 -- putting it in the top 1%. So Deutsche's got the edge here, but basically, both raters are all-stars in our book.

Here are a couple of the picks that got them where they are today:

Both firms have enviable records of outperformance. Both have followed the company for years. Deutsche, for example, began covering Borg in the depths of the post-Bubble recession, first declaring it a "buy" in June 2002 (Lehman started even earlier, only suspending coverage last year when the analyst who covered Borg left the firm). After riding the stock up an amazing 109% -- outperforming the S&P by 84 points in the process -- Deutsche showed uncanny precision in reducing its rating to "hold" in July 2005. Since then, the stock has returned an additional 19% -- outperforming the S&P, but by a less impressive three percentage points this time.

Mind you, at Motley Fool Stock Advisor, we've done even better. Since Stock Advisor co-analyst Tom Gardner first recommended BorgWarner in February 2003, our members have enjoyed a 155% return on their investment, versus a 55% return to the S&P 500. But we have to admit: Deutsche still deserves a hearty "not bad" for its own pick.

To find out who's the best CAPS analyst currently following BorgWarner, click here. (Don't be surprised, though, when you learn it's not a Wall Street firm at all.)

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 58 out of nearly 21,000 raters. Omniture and JetBlue are Stock Advisor picks. The Fool has a disclosure policy.