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 best ...
On Friday, a pair of Wall Street heavyweights weighed in on a trio of steelmakers, with UBS upgrading the stocks of U.S. Steel (NYSE:X) and Steel Dynamics (NASDAQ:STLD), and Goldman Sachs echoing the sentiment on a Steel Dynamics rival, fellow mini-mill operator Commercial Metals (NYSE:CMC). Of the three, Commercial Metals and Steel Dynamics picked up buy ratings, while U.S. Steel got only a hold. Why? UBS thinks locally produced steel prices are going higher on the back of reduced steel imports, caused by unexpectedly strong demand for construction-grade steel abroad. That said, it called U.S. Steel's current valuation "stretched." (Yet it raised its price target on this "stretched" stock by ... wait for it ... $43 per share, from $62 to $105.)

I'd ordinarily be inclined to agree with the sentiment that steelmakers are going higher. All the talk of buyouts by savvy players, as well as the comments that steel-industry insider Scott Jones of Novamerican (NASDAQ:TONS) made in our recent interview, seem to be pointing that way. That said, UBS's logic seems a little hinky in arguing that U.S. Steel is verging on overpriced, but should go higher. What's more, at the same time that UBS was upgrading the company, Merrill Lynch was apparently downgrading it to neutral, for the same reason UBS cited -- that it's fairly valued!

To double-check my thinking, I decided to examine both of the ratings-raisers' records on Motley Fool CAPS and see just how successful they've been at the soothsaying game. Here's what I found: First off, both UBS and Goldman are pretty successful investors. With CAPS ratings of 95.36 and 90.52, respectively, each (or, rather, the CAPS tracking avatar for each) places in the top 10% of CAPS players.

How'd they do that?
With picks like these:

Even more important than their overall stock-picking prowess, both firms seem to have special skill in steel. In each case, their top 50 picks tracked by CAPS include at least three companies working in the steel sphere of industry. UBS's double-talk on U.S. Steel notwithstanding, therefore, I think it's worth listening to what these analysts have to say when they say steel is going higher.

As good as UBS and Goldman are, however, they're still not the best at calling the highs and lows of the steelmakers. To learn who is the king of the hill at this game, click through to read the thoughts of the CAPS score leader on:

• U.S. Steel,
• Steel Dynamics, and
• Commercial Metals.

You may be surprised to learn that the score leader on each is no professional analyst -- but a lay investor, just like you and me.

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 44th out of more than 25,000 raters. The Fool has a disclosure policy.