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 ...
Today's column is going to be a bit of a departure from the norm for us. Granted, at its heart, we key in on BMO Capital Markets' early morning initiation of coverage on Procter & Gamble (NYSE:PG) with an outperform rating. But this week, the rater is more interesting than the rate-ee.

According to an AP report detailing a series of stocks newly covered by BMO, we learned that the analyst behind all the new ratings is a hire from the now-defunct equity research arm of Prudential Financial. Which presents us with an interesting dilemma -- whose record should we examine to determine whether BMO's advice to buy P&G should be followed? Do we check out how Prudential performed back when it was still in the rating biz (it quit in June 2007)? Or do we give the new outperform rating "the full faith and credit" of BMO?

Hedging our bets
Perhaps we need to do a little bit of both. Sure, one and the same person racked up the record on fast-moving consumer goods (FMCG) at Prudential, and will now try to do the same at BMO. But presumably, her research team has changed. Her institutional resources, too. Maybe even the investing philosophy and grounds for recommending (or panning) stocks at the new shop. So let's examine the records of both Prudential and BMO to get a feel for how today's rating on P&G might play out. Let's start with a few representative picks from back when Prudential was in business:

Unlike Prudential, BMO has never really focused on FMCG companies. Let's look at the next best thing -- a sector BMO does cover, where people buy new products almost as fast as other people buy new tubes of toothpaste: PCs.

I must say that BMO's new analyst doesn't seem to have brought with her a particularly encouraging record from Prudential. Particularly instructive, Prudential's last recorded recommendation on P&G was to buy it in the low 50s back in July 2005. Since then, the stock has lagged the S&P 500 by a fraction of a percent.

Now, take this data and combine it with the fact that Prudential carries (by virtue of momentum from its last recorded picks in June) a CAPS rating of only 84.96. That's a respectable score in and of itself. But I wouldn't necessarily give a rating from "BMO," that's actually from a Prudential analyst, the same weight ordinarily deserved by a firm with BMO's 96.25 CAPS rating. Long story short, I'd discount BMO's ratings of FMCG companies for a while until its new FMCG team proves itself worthy of the institution it's now with.

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. 204 out of more than 60,000 rated players. Colgate Palmolive, Intel, and Dell are Inside Value newsletter recommendations. Dell is also a Stock Advisor newsletter selection. The Fool has a disclosure policy.