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 ...
As the trading week closed on Friday, international megabank Citigroup decided to end it with a bang, upgrading Motley Fool Stock Advisor recommendation Priceline.com (NASDAQ:PCLN) to "buy." Agreeing with the Fool's Rick Munarriz that the company's earnings news from May 8 was "not that bad," Citigroup argued that the name-your-own-price entrepreneur offers the "most levered name to European growth" in the travel market. Again, this echoes Rick's observation that the firm enjoyed a "91% surge in European bookings" during the first quarter.

However, since being recommended in Stock Advisor nearly three years ago, the stock has more than doubled, eclipsing the S&P 500's performance by a stunning 117 points. Can a stock that has gone up so much already really rise farther still?

That's a trick question, right?
Close. It's actually a rhetorical question. Longtime readers know Fool well that wherever a stock has been in the past, what matters to us as investors is where it's going in the future. Here's a better question: How good is Citigroup at predicting where stocks are going? For that answer, we turn once again to Motley Fool CAPS for a glimpse at Citigroup's record.

There, we see that while it's not exactly the world's best stock picker, Citigroup is also far from the worst. With a CAPS rating of 86.80, Citigroup earns an All-Star rating by virtue of its position in the top fifth of our lay and professional investors. On the other hand, the firm's record of making correct calls is, well, a bit less encouraging. I know this sounds harsh, but its sub-50% accuracy rating means you're statistically better off flipping a coin for your investment decisions than paying Citigroup to make them for you.

To illustrate, let's look at a trio of three popular predictions that Citi made right ...

and another trio with which Citi went badly astray:

If Citigroup is slightly more often wrong than right in its predictions, how does it wind up with a CAPS rating that beats four out of five investors? As demonstrated in the sampling shown above, Citigroup's winners tend to do somewhat better than its losers do badly.

Heads or tails
That still leaves us wondering whether Priceline.com turn up heads or tails for Citigroup. Will it be one of Citigroup's substantial losers, or one of its even more sizeable winners? I suspect the latter.

Priceline.com skeptics will certainly argue that the firm's 20% projected growth rate cannot support its trailing P/E of 45. And I agree that, at a price-to-earnings-to-growth ratio of 2.2, the firm looks clearly overpriced -- on the surface. But dig a little deeper, and I think you'll find that Priceline.com generates substantially more cash profits than its GAAP "earnings" let on. In fact, with trailing free cash flow of nearly 98 million, the firm's price-to-free cash flow ratio comes to an entirely reasonable 24, which is much more reasonable given the growth rate.

At this price, the stock doesn't look like a screaming (or even a whimpering) bargain to me anymore. But neither does it look expensive enough to convince me to change my own "outperform" rating on the stock -- one that's netted me a good 80 CAPS points since I endorsed the stock back in September 2006.

Still not convinced?
Citigroup's upgrade, Stock Advisor's recommendation, and my own outperform rating still haven't convinced you to buy the stock? You want a fourth opinion before making your decision? Sheesh!

Very well. If that's the case, you're actually in luck. We just so happen to have identified the investor with the single best record on Priceline.com (and guess what -- he likes it, too!) Click here to visit the investor's CAPS page and find out why.

And heck, if after reading that, you remain unconvinced, then feel free to claim a free trial of Motley Fool Stock Advisor on your way out. With more than 100 recommendations in our portfolio, I'm sure there's something in there you'll like even better.

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 No. 1,291 out of nearly 29,000 rated investors. NetEase.com is a Rule Breakers pick. The Fool has a disclosure policy.