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 ...
Early this morning, the Wise Men of UBS downgraded shares of corn-fuel hawker VeraSun Energy (NYSE:VSE) from "neutral" to "reduce." Why is UBS throwing out VeraSun? Perhaps in honor of baseball season starting up again, UBS cites three strikes against the company:

• The U.S. Department of Agriculture expects a bumper crop of corn to be planted this year. That will cut the price of a key raw material used when VeraSun manufactures ethanol.
• Oil prices are on the rise. That makes ethanol relatively less expensive.
• Now, those first two "strikes" actually look like pluses, don't they? UBS, however, knows that when it comes to commodities, what goes up must come down, and vice versa. Looking past the short term, it sees corn prices rising once again and oil prices falling. As a result, the bankers say that VeraSun's recent 40% rise has the shares now looking overvalued.

Let's take a look at UBS's record on CAPS and see whether there might be some method to its madness.

As regular readers of this column already know, UBS isn't the best stock picker on Wall Street, but it's pretty darn good. With a CAPS ranking of 96.25, it's doing better than about 24 out of every 25 players on CAPS. Focusing on its underperform calls in particular, here's how UBS has done at calling a dog a dog of late:

Meanwhile, it's done considerably worse with:

I guess there are a couple of ways to interpret the above results. You could say that UBS does best when making the obvious call -- that subprime-mortgage brokers are in trouble. (Surprise!) Or you could take a sector focus and observe that UBS seems to know biotech pretty well but is a lousy judge of the automotive sector.

Remember, though, that the above is just a sampling of UBS's picks over the past eight months -- a mere half-dozen out of the 354 UBS recommendations we're tracking on CAPS. To get a better gauge of what's going on, I'd encourage you to visit the actual Motley Fool CAPS site to review UBS's full list of picks, and how they've performed. Do that, and you'll see the real pattern here -- UBS does best when it recommends buying stocks -- and it scores most awfully when telling investors to sell.

That being the case, I wouldn't pay much attention to UBS's opinion on VeraSun. My own misgivings over the company's valuation notwithstanding, these bankers just plain haven't proved an ability to make great underperform calls. Until they do, investors shouldn't give them credit for a skill they lack.

Who does know how to pick losers? In a March edition of this column, I described one brokerage firm with a special talent for finding the worst dreck on the Street and telling people to sell it in a timely fashion. Read all about it here, and check out its record here.

Make seven picks on CAPS by April 24, and we'll send you a free copy of The Motley Fool Five-Star Report. Inside, you'll discover how to use CAPS as a research tool, and you'll also receive a recommended five-star CAPS pick poised to beat the market for the next decade or more. It'll be a pick that you can easily translate into profits for your real-world portfolio. But please hurry: This special report will be mailed out on April 24. And it's being sent only to CAPS members who have their seven picks in by then. Get started now!

Encysive is a Rule Breakers recommendation. Paccar is a Stock Advisor newsletter selection.

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 195th out of more than 26,000 raters. The Motley Fool has a disclosure policy.