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 worst and sorriest, too.

And speaking of the best ...
No sooner had NYSE Euronext (NYSE:NYX) announced the results of a tender offer upping its stake in Euronext to 97% yesterday, then out came Goldman Sachs and downgraded the world's premier stock exchange to sell. Oh, the shame of it all.

Of course, as Goldman clarified in its research note, its downgrade had nothing to do with NYSE's taking over Euronext, and everything to do with an obscure change in U.S. law that the broker feels will hurt NYSE's business, and favor its archrival, Nasdaq (NASDAQ:NDAQ). When the SEC's "Regulation NMS" goes into effect in July, brokers who ordinarily trade on one exchange (e.g. NYSE) will be required to check other exchanges (e.g. Nasdaq) to confirm whether it offers better prices on a security that the broker has been instructed to trade. According to Goldman, the real-world effect of this regulation will be to help Nasdaq steal market share from NYSE. Not coincidentally, at the same time as it downgraded NYSE to sell, Goldman upgraded Nasdaq to buy.

But hold on a minute. Wasn't the big idea behind NYSE's 2005 buyout of Archipelago that their combination would create a better, faster, more efficient marketplace that could compete effectively with Nasdaq? And if that's so, then does Nasdaq really have the advantages over the new-and-improved NYSE that Goldman ascribes to it?

The likelihood that Goldman is making the right calls here (Nasdaq up, NYSE down) hinges on the answer to these questions -- answers that we, as individual investors rather than market insiders, are ill-placed to uncover. But before blindly assuming that Goldman, the consummate market insider, knows what it's talking about, let's take a look at its record on Motley Fool CAPS. There we find that this analyst just keeps getting better and better. At last report, its CAPS rating had grown to a healthy 92.95 -- cementing its position within the top 10% of CAPS players with the help of bullish calls such as:

And bearish picks like:

So Goldman's winning streak continues. But will its twin calls on NYSE and Nasdaq help extend the streak, or bring it screeching to a halt? My guess is that Goldman knows what it's talking about here. I think this not just because, as a major Wall Street trader, Goldman knows a thing or two about the relative merits of the two exchanges. But also because:

• NYSE's own CFO exercised 10,000 stock options last week, and promptly dumped each and every one of them on the market just days before the firm announced its near-entire takeover of Euronext. I don't know about you, but that doesn't inspire a whole lot of confidence in this Fool.
• And from a pure numbers perspective, when I look at NYSE's 63 P/E, and its projected long-term growth rate of 24%, the resulting PEG ratio of 2.6 just screams "overpriced."

That said, it's worth pointing out that NYX continues to enjoy the support of the good folks at Motley Fool Rule Breakers. The stock has proven their faith well placed over the years, returning better than 300% profits to our members since we recommended it just over two years ago. (But it's not even our best performer. To learn which stock holds that honor, claim your free trial to the service, and get access to our entire portfolio of growth stock recommendations.)

So there you have it, folks. Two market titans taking entirely opposite positions on NYSE Euronext. Goldman's against it. David Gardner and the gang at Rule Breakers are for it. Perhaps you'd like a tiebreaker?

If so, then click on over to CAPS and get yourself an unbiased opinion from the All-Star CAPS investor who just happens to have the best record going on NYSE. Like the man said: "It don't cost nuthin'." So do yourself a favor and visit CAPS now.

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 181st out of nearly 28,000 raters. The Fool has a disclosure policy.