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 ...
Here at the Fool, we have a tradition of "dueling Fools," in which a pair of Foolish minds debate the merits or flaws of a given stock. In contrast, the analytical herd up on Wall Street tends to graze en masse. If a dozen firms follow a given stock, and one guy decides he likes it, chances are that the majority of his brethren will follow suit and slap buy ratings on the company. Rare is the day when a single stock earns completely opposite re-ratings from two firms on one day.

But Friday was one such day, and NVIDIA (NASDAQ:NVDA), one such stock. Shortly after NVIDIA announced a doubling of its Q2 profit on Thursday, bankers Stifel Nicolaus and BMO Capital rushed to take opposite sides of the trade. Carrying the bearish banner, Stifel argued that "the impact of tightening capacity, limited inventory, building competitive pressures, and rising DRAM prices" all posed threats to NVIDIA's stock performance in the "near to intermediate term." Considering the risks, and the fact that NVIDIA shares have already risen 60% since late March, Stifel argued that discretion was the better part of value at this time, and urged investors to take their winnings and sell.

To which BMO replied: "Balderdash." (I'm paraphrasing. Pinstriped Streeters would never use such strong language.) While acknowledging the near-term risk of a supply-chain bottleneck, BMO sees NVIDIA stealing market share from its rival ATI Technologies, and thinks that's reason enough to own the stock. Hence, BMO upped NVIDIA to "outperform."

Dueling Wise Men
Now you know the stories behind Friday's ratings -- but what's the story behind the raters themselves? We've got two supposedly wise analysts agreeing on the facts here, but interpreting these facts in directly opposite ways. How do we know who to listen to?

To which I reply: Listen to the analyst with the best record. And according to CAPS, that would be BMO. With a CAPS rating of 96.87, BMO carries the coveted title of "Wall Street's Best," ranking No. 4 out of all the professional analysts we track. In contrast, while Stifel's 89.55 rating tells us that it's certainly no slouch in the stockpicking department, it's significantly lagging its rival.

To further illustrate the divide between these two stockpickers, let's examine a few of their respective best, and worst, recommendations:

Meanwhile:

So who wins this duel?
I have to admit, I'm of two minds on this one. On the one hand, I think Stifel is a great analyst. In fact, not so long ago, Stifel too proudly wore the "Wall Street's Best" ribbon. Moreover, the firm has a pretty good record in shorting NVIDIA, having rated it a sell back in November 2006, and accumulated a 20-point lead over the S&P 500 before closing out that position in March 2007.

That said, I think I'm going to cast my vote in favor of BMO today. Why? Its sterling CAPS performance certainly helps. I've also noticed that this firm is no semiconductor slouch. In fact, it's got a better record than Stifel does when it comes to calling Intel's ups and downs. But the real kicker, I admit, is that I simply think BMO's long-term focus is more Foolish than Stifel's "near to intermediate term" gamesmanship.

Stifel is merely trading out of the stock today because it sees a short-term risk. Meanwhile, BMO is willing to stick to its convictions and run against the herd in rating NVIDIA a buy. While I agree with Stifel that NVIDIA looks a little pricey at 22 times trailing free cash flow (against 17% per year expected growth), the apparent overvaluation isn't enough, in my view, to merit an out-and-out sell rating.

But hey, I'm just a rank-and-file Fool. If you want to run the BMO/Stifel debate by someone who really knows NVIDIA, check out what David Gardner is saying about it in Motley Fool Stock Advisor. NVIDIA has given David a four-bagger since he recommended it to Stock Advisor members back in April 2005 -- pretty good proof, in my book, that David knows what he's talking about. Get his unbiased opinion when you take a free, 30-day trial to the service.

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. 230 out of more than 60,000 players. Intel is an Inside Value newsletter recommendation. The Fool's disclosure policy always knows where it stands.