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.

Mr. Market? Meet Mr. CAPS
But in this feature, 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, the Fool's new tool for rating stocks and their analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the best...
Yesterday, Motley Fool Stock Advisor recommendation Amazon.com (NASDAQ:AMZN) received mixed blessings from Wall Street. On the one hand, Bear Stearns took a -- what else? -- bearish stance on the stock's margin erosion and lofty valuation, downgrading Amazon from an "outperformer" to an "underperformer." Meanwhile, investment banking rival Piper Jaffray took an opposite tack. While just as concerned as Bear about the margins, Piper was wowed by the e-tailer's 34% sales growth (to $4 billion for the quarter) -- wowed enough to lift its "underperform" rating to a half-hearted "market perform."

It sounds like a tale straight from Mother Goose: "The Bear and the Piper." But which of these bankers are we to believe? You might decide by examining the investment houses' respective track records on CAPS.

There you'll see that whereas Bear Stearns ranks among the top 10% of Wall Street stockpickers, boasting a superb CAPS rating of 99.48, Piper Jaffray puts in a much more muted performance -- its 75.20 rating places it behind more than 5,000 other lay and professional analysts in CAPS, and its 49.06% accuracy rating tells you this firm has been wrong slightly more often than it's right. (Doh!)

And how did the firms get their respective rankings? Well, by making picks like these:

And these:

Overall, it's clear that Bear Stearns displays the better record here -- in general. But as it turns out, neither of these firms can boast of being particularly expert in predicting Amazon's performance. Reviewing the last three ratings each assigned to Amazon, we see the following results:

• In November 2002, Bear predicted Amazon would just match the market's performance. By the time Bear changed its mind more than two years later, Amazon had racked up 110% in gains, versus just 35% for the S&P 500.
• In December 2004, Bear decided to jump on the Amazon bandwagon and upgraded the stock to outperform. Bad timing, Bear. From December 2004 through close of trading on Friday, Amazon actually lost 16%, compared to a 19% gain for the S&P.

Meanwhile, Piper fared little better:

• In July 2005, Piper predicted Amazon would perform no better than the market. In fact, Amazon proceeded to shed 40% of its value over the next 12 months. The S&P rose 2%.
• In July 2006, Piper finally lost faith in Amazon and downgraded it to underperform -- at which point the stock proceeded to crush the market by a 3-to-1 margin, rising 42% in value through the end of last week.

Perhaps on this one, you're better off following the advice of the Fool's own David Gardner. In late 2002, when Bear Stearns was telling people to expect little from Amazon, David was urging members of Motley Fool Stock Advisor to buy. Those who listened to him have grinned all the way to the bank, as Amazon obliterated the market's performance, 144% to 62%.

Who else knows Amazon, you ask? At CAPS, the lead scorer on the company isn't an investment bank or a professional Fool, either. To learn who he (or she?) is, and his (her?) thoughts on the company today, just click here.

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 32 out of more than 21,000 raters. Sina is a Stock Advisor choice. The Fool has a disclosure policy.