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...
That superhero of the Motley Fool Stock Advisor portfolio, Marvel Enterprises (NYSE:MVL), received yet another upgrade this morning, as enigmatic stock picker Matrix Research upgraded the stock to "buy." But what's with Marvel's stock price? As markets all across the nation surge into the green, Marvel's stock is sitting right around where it was before the upgrade.

When investors -- who ordinarily hardly ever meet an upgrade they don't like -- react in this manner to a buy rating, you might imagine the analyst responsible for the upgrade as more a villain than a superhero. But is that the case today? Is Matrix Research some kind of contrarian indicator whose sells should be bought, and whose buys should be shunned?

I'm glad you asked
As a matter of fact, Matrix is a contrarian indicator. Oh, it hasn't always been that way. Time was, Matrix had a pretty decent record of "black box-stock picking." In fact, as recently as June, the firm was holding onto All-Star status with a CAPS rating of 84.25, and a record that prompted professional money manager and longtime Fool theGreenMartian to opine:

[Matrix has] a distressing habit of being absolutely rational with their upgrades & downgrades... The last thing we need is a research shop worth listening to...

But my, how times have changed. As of today, Matrix has completely fallen from grace in CAPS Land. Its accuracy sub-50%, its score in negative territory, and its reputation in tatters, Matrix now hides behind the figleaf of an "Under 20" rating. So we know it's a worse stockpicker than any four out of five individual investors you could name. The only mystery remaining about this black box company is whether it's perhaps worse than any nine out of 10, or 19 out of 20.

How did things go so horribly wrong? Well, let's take a look at a few of the, shall we say, "less brilliant" recommendations Matrix has made since we last checked in:

Of course, even a dog has its day, and Matrix had a couple when it recommended:

Foolish takeaway
Once upon a time, Matrix had it going on. This mysterious analyst shop, described by CAPS All-Star mrchw as being "a total black box company," had magic in its box. But although I own Marvel myself, seeing Matrix endorse it today gives me a bit of a chill along the spine. Checking back on how my stock has been doing, I now see why:

Marvel currently sports a 19 P/E, and an 18 multiple to trailing free cash flow. Neither figure looks egregiously expensive against analyst predictions of 17% annual profits growth over the next five years, but neither is Marvel particularly cheap. To me, these ratios make Marvel look more like a "hold" (which is, in fact, what I'm doing in my own portfolio) than a "buy." And contrary to what Matrix is saying, that's the advice I would give.

You know what Matrix says. You know what this Fool says. Looking for a third opinion on Marvel? Check out what the score leader on CAPS has to say about the stock. Currently beating the market by a good 30 points with his (or is it her?) pick on CAPS, this is one Fool who really knows her (um, his?) comics.

Fool contributor Rich Smith owns shares of Marvel, but no other companies mentioned. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 238 out of more than 60,000 rated players. The Fool's disclosure policy reminds you that Jack Kirby would have been 90 yesterday.