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 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 ...
I don't know about you, but I'm giving serious thought to renaming this column "UBS Upgrades and Downgrades." In all candor, while I don't set out to feature the Swiss securities specialist every single day of the week, these guys pick so many interesting companies to rate, and rate them so often, that I find myself drawn to them like a pyromanic Fool to the flame.

Last week, as you may recall, we examined UBS's sell signal on U.S. Steel and its initial "buy" call on Under Armour (NYSE:UA). This week, we find the Swiss upgrading a much different player -- one that most investors seem to have given up for drowned. Yes investors, on Monday UBS took a long walk down a short Pier 1 (NYSE:PIR) and upgraded these shares to "buy." I've got strong feelings on this one, but before we address the merits of the upgrade, let's check the objective data. Here's UBS's ranking in CAPS:

• Player: UBS
•  CAPS rating: 93.40
• Accuracy: 53.99%
• Rank: 2,041 out of 31,121

Examining a few of its recent picks in the home furnishings sphere, we find:

I must admit -- proceeding from UBS' abysmal record picking retail stocks the last few months, I was expecting to find the Swiss had a pretty bad record on home furnishings as well. But in fact, UBS has done quite well with this industry. Reviewing its entire record on CAPS, the firm is actually getting a few more picks right than wrong. Even better -- and as reflected above -- its right picks are doing considerably better than its wrong picks are doing badly.

That said, I have real qualms about UBS' upgrade of Pier 1. According to the analyst, Pier 1 is in the midst of a "significant transformation" under the leadership of its new TJX (NYSE:TJX)-poached CEO, Alex Smith. But the thing is, Pier 1 has been in the midst of a transformation since at least way back in 2004, when no less an investor than Warren Buffett thought the shares had potential. Yet even if you measure from the shares' pre-Buffett-stake-announcement nadir, believing in the transformation story has cost investors 45% of their stake since then.

What makes UBS think "this time is different," it seems, is that new-CEO Smith aims to revive the company's fortunes not through driving greater sales, but through cutting costs. And indeed, in the few short months since he took the helm at Pier 1, Smith has succeeded in lopping 3% off of the firm's selling, general, and administrative costs (in comparison to fiscal Q4 2006). Problem is, this wasn't nearly as much of a decline as the company experienced in sales, which fell more than 6%. The way I see it, UBS' theory only makes sense if we start to see a torrent of cuts in SG&A at Pier 1 -- cuts that make the bleeding in sales look insignificant by comparison. So far, such cuts aren't in evidence.

Or more poetically: UBS may have faith in the new captain at Pier 1's helm. But to this Fool, the pier appears to be sinking still.

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. 1,451 out of more than 31,000 raters. Under Armour is a Motley Fool Rule Breakers newsletter recommendation. La-Z-Boy and Masco are Income Investor selections. The Fool has a disclosure policy.