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 ...
After a brief spike in price earlier this month, Yahoo! (NASDAQ:YHOO) has resumed its slide downward. Not one to pass up an opportunity, investment banking heavyweight JP Morgan pounced this morning, chasing Yahoo! down and tagging it with an upgrade to "buy."

Heedless of any warning signs implied by yesterday's news that Yahoo!'s chief technology officer has resigned, the analyst focused instead on Yahoo!'s new revenue prospects, echoing Fool Rick Munarriz's sentiment that the recent purchase of Right Media was a smart move and citing new advertising partnerships as also likely to boost revenue. The market seems to agree with JP on this one, as news of the CTO's departure hardly moved the needle on the stock at all -- and most definitely did not send it tumbling.

But is the market right? As Adam Smith's ghost will no doubt confirm, the market is always right. So it seems a corollary that JP Morgan's endorsement of Yahoo! should prove correct. But just to be safe, let's take a quick glance at JP Morgan's record and see how well its predictions have fared in the past.

In this task, we once again turn to Motley Fool CAPS for some context. There, we find that while it's perhaps not the best stock picker on the Street, JP Morgan is hardly the worst. In fact, its 87.03 CAPS rating earns it the title of "CAPS All-Star" -- not an easy feat when your accuracy rating is just a whisker higher than 50%, as JP Morgan's is.

What disproportionately good picks has JP Morgan made to win it points enough to outweigh its less-than-stellar record for accuracy? Well, for starters:

Seeing as JP Morgan gets about as many picks wrong as right, let's now review a few of its losers:

Foolish takeaway
Personally, I've got some reservations about JP Morgan's call. Growing revenue is nice, sure, but I don't like the way Yahoo!'s margins on that revenue have been trending lately (generally downward over the last couple of years). Nor does the continuing slide in return on equity impress me. That said, reviewing the company's past picks, the stellar returns JP Morgan earned on its recommendation of digital marketer aQuantive jump out at me as suggesting that the banker knows a thing or two about Internet advertising.

Between that and the Fool's own Tom Gardner's endorsement of Yahoo! for Motley Fool Stock Advisor last August (find out why Tom likes it when you claim your free 30-day trial of Stock Advisor), I'm willing to give JP Morgan the benefit of the doubt here. There's no doubt that Yahoo! is a brand-name company. If it can fix its profitability problems and realize the rising revenue JP Morgan foresees, then the returns here could be truly awesome.

But don't just take my word for it, or Tom's, or JP Morgan's. Check out what the score leader for Yahoo! has to say about the company. You can learn the identity of this mystery stock picker, and find out what he (or is it she?) thinks about the stock, when you visit Yahoo's CAPS page.

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 No. 1,625 out of more than 29,000 raters. aQuantive is a Motley Fool Rule Breakers recommendation. Starbucks is a Stock Advisor selection. JPMorgan Chase is an Income Investor pick. The Fool has a disclosure policy.