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 worst ...
Yesterday, investment banker Keefe, Bruyette & Woods joined SunTrust Robinson Humphrey in arguing that duck-mascoted Aflac (NYSE:AFL) is ready to take wing. Like the folks at SunTrust, KBW's analysts acknowledge that the insurer is temporarily "under pressure" in Japan, where deregulation has doubled the number of its competitors in the last five years. But, like SunTrust, KBW expects Aflac to recover and grow its profits in the future. Hence its upgrade to "outperform."

Of course, Wall Street is far from unanimous in thinking Aflac a top-flight stock. On the contrary, according to the Fool's data provider, Capital IQ, as many analysts label the stock a "hold" (often considered analyst code for "sell") or "sell" (Street-speak for "run for your life") as call it a "buy." In fact, as mentioned the last time we featured Aflac in this column, William Blair downgraded the stock to a "hold" equivalent just last month.

So who's an investor to believe? KBW and SunTrust, or Blair and its fellow naysayers? One way to decide might be by examining the investment houses' respective track records, which we're following on Motley Fool CAPS. There, you'll find that of the three firms named above, only one sports a record worth bragging about. With a stellar CAPS rating of 98.85, and an accuracy percentage showing it to be right nearly twice as often as it's wrong, SunTrust places in the top 10% of Wall Street firms tracked on CAPS. In contrast, both KBW and Blair share a bench in the CAPS basement, their ratings described with our "Under 20" characterization, crafted to hide the embarrassment of Wall Street's fourth-string financial quarterbacks.

But should the endorsement of CAPS laggard KBW cancel out the imprimatur of CAPS standout SunTrust's labeling Aflac a buy? Let's take a look at KBW's record in hopes of finding a clue as to where it's gone wrong:

Of the two insurance stocks (other than Aflac) in KBW's CAPS "portfolio," the company scored one moderate loser (Safety Insurance), and one big winner -- in fact, its biggest: Security Capital. So KBW doesn't appear to be entirely jinxed when recommending insurers.

Moreover, a careful review of the portfolio will show that KBW's negative score on CAPS can be attributed entirely to just two really bad calls -- its underperform rating on Accredited and its outperform on optionsXpress. My read on the situation is that KBW isn't necessarily an abysmal stock picker -- it could be just a little worse than average, and currently experiencing an exceptional run of bad luck.

As for whether yesterday's endorsement of Aflac will lengthen that run or bring it to a screeching halt -- I've got to go with the latter. The reason: Motley Fool Stock Advisor co-analyst Tom Gardner also likes the stock. Considering that over five years at Stock Advisor, Tom's picks have beaten the S&P 500 by 40 points on average, I suspect that KBW is making the right choice in aligning itself with Tom on this one.

To find out why Tom likes Aflac in particular, and whether it's for the same reasons cited by SunTrust and KBW, claim a 30-day free trial of Stock Advisor to read his write-up on the stock. And to find out who's the best CAPS analyst currently following Aflac, 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 26 out of nearly 25,000 raters. Safety Insurance and optionsXpress are Stock Advisor picks. The Fool has a disclosure policy.