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 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...
On Tuesday, we witnessed an epic battle of wills on Wall Street. One of the best stock pickers around went up against one of the best-performing stocks ever picked by Motley Fool Hidden Gems. When the dust had settled from this collision between irresistible force and fast-moving object, stock-picker Citigroup was unscathed, but voice-to-print software maker Nuance Communications (NASDAQ:NUAN) had lost $72 million worth of market cap. Ouch.

What was the catalyst for Citigroup's downgrading Nuance to neutral? No one seems to know. Nuance announced a pair of new product offerings yesterday, but that's hardly the kind of news to turn an analyst skittish. More likely, Citigroup simply decided to take some winnings off the table -- and it's got a lot of them. Since Citigroup recommended the stock back in December, Nuance has outperformed the S&P 500 by a good 35 points.

As good as that sounds, it isn't the best call Citigroup has made in recent months. The banker has done even better with:

Who'd a thunk you could make more money investing in fertilizer than in high-tech? And who'd have suspected that Citigroup's recommendations of stand-out tech names like Salesforce.com and Synopsys would hurt Citigroup's record?

Both sets of results are surprising, if you ask me. But what's not surprising is that Citigroup's recommendation of Nuance turned out so well. Judging from the bank's record, the odds favored a successful pick. It boasts a respectable 58% record of making correct calls. Moreover, when Citigroup's right, it's often very right indeed, resulting in massive outperformance of the S&P and contributing to a CAPS rating of 98.46. Incidentally, that's good enough to put Citigroup in the "Wall Street's Best" club on CAPS.

The question
All of which begs the question: If such a savvy stock-picker is bailing on Nuance now, should individual investors do likewise? By a vote of 2,820 to 131, CAPS investors say, "No way, Jose." Even after yesterday's downgrade, CAPS players give Nuance a solid rating of four stars. To learn what Fools are saying about Nuance (and in particular, to learn the views of the investor with the single best record on predicting the stock's movements -- hint, he's not a Wall Street pro), just click here.

One final note: As of this writing, Nuance has returned an average of 100% per pick over the course of the two times Hidden Gems has recommended it. To learn whether the Gems team thinks Nuance fully valued or whether Citigroup's downgrade has given us a buying opportunity, claim a 30-day free trial to the service and check out the stock's "buy below" price.

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 30th out of more than 25,000 raters. The Fool has a disclosure policy.