This Just In: Upgrades & 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 worst and sorriest, too.

And speaking of the best ...
I doubt it will surprise many investors to learn that Motorola's Wednesday evening earnings warning resulted in a couple of analyst downgrades Thursday. No sooner had the company warned that sales were coming in below its forecast and that it was headed for a Q1 loss than BMO Capital Markets and RBC Capital Markets rushed to close the barn doors on their buy ratings. Issuing twin downgrades to "neutral" equivalents, these bankers complained of "the magnitude of the miss" (BMO Capital Markets) and Motorola's "limited ability to raise prices" (RBC Capital Markets).

Well, duh.

Our twin initialed analysts are a bit slow to the Moto-bashing party. Reviewing the stats on briefing.com, I count a total of nine other analysts who were predicting something very much like what happened Thursday, and downgrading Motorola accordingly, as far back as January. Heck, even I highlighted the trend of rising sales and slimming margins as a danger, and I'm no hedge fund honcho -- just an ordinary investor like you.

So here's our dilemma: Knowing as we do that BMO and RBC missed torpedoing Motorola's boat once already, how should investors react to their newfound doubts about the company? To get a better feel for whether these are downgrades we should heed, we turn to CAPS for a glimpse at their records.

Let's go to the tape
According to CAPS, both BMO and RBC are pretty fine stock pickers, even if neither one makes it into the elite club of "Wall Street's Best" CAPS players. BMO sports a 97.45 rating, and a reputation for making accurate calls nearly twice as often as it goofs. RBC -- not quite as good -- scores a respectable 87.49 rating, and is right slightly more often than wrong. As is our wont, let's review a few of each firm's best, and worst, ideas:

Meanwhile:

So what we have here, folks, is a pair of pretty sharp stock pickers -- not the best-honed blades in the drawer, perhaps, but good enough. That said, in spite of BMO's impressive record and RBC's respectable one, neither analyst deserves commendation today. They closed the barn door after the stampede. Turned off the coffee pot after the java had already turned to tar. Pick the metaphor of your choice -- they blew the call.

If you absolutely must let an analyst tell you how to play Motorola, you're much better off listening to someone like Cowen & Co. Before the initial twins in March, before the nine analysts in January -- way back in December 2006, Cowen had already downgraded Motorola to a hold. And while it might have been luck, the fact that Cowen sports a 99.37 CAPS rating, and bears the coveted "Wall Street's Best" icon at CAPS, strongly suggests that this firm knows what it's doing.

Who else knows what makes Motorola tick? The answer might surprise you. Click here to find out who's the best-scoring analyst currently tracking the company.

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 ranked 54 out of nearly 25,000 raters. The Fool has a disclosure policy.