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 its worst and sorriest, too.

And speaking of the best ...
Well, that was quick. Less than one month ago, we examined here Stifel Nicolaus' decision to issue twin "sell" ratings on e-commerce retailers Amazon.com (NASDAQ:AMZN), and Overstock.com. At the time, Stifel argued that "the domestic retail environment and a slowing economy could impact Internet growth over the coming quarters." Yet today, Stifel is doing a 180 on its Amazon call -- and rewriting history a bit as well.

According to a report on MarketWatch, the real reason Stifel wanted to sell Amazon four weeks ago was that "a new, more short-term-oriented group of investors had begun moving Amazon shares to unsustainable short-term levels." With the stock off 22% since its highs of late last month, it's safe to say that these "share 'renters' have exited the investment." Result? Stifel is again telling its clients to buy Amazon. (And staking out a sign for the mo-mo traders: "Shares for rent. Act now!")

I have to admit -- I'm a bit suspicious about the shifting rationale behind Stifel's ratings. Still, let's let the firm's record speak for itself before we cast judgment.

Let's go to the tape
Stifel has been getting less and less impressive over the past several months, as its CAPS rating plummeted from the 99th percentile down into the upper 70s. Perhaps worse, the company's accuracy has suffered alongside its raw score. At last report, Stifel was getting fewer than half of its picks right. Notable failures have included:

Fortunately, good calls like the following have helped to balance the scale for Stifel:

Also helping to keep Stifel's score above water, and its reputation intact ... Overstock and Amazon! Since recommending that the two e-tailers be sold last month, Stifel's racked up a total of 9 points' worth of S&P 500-outperformance -- not bad for a month's work.

Foolish takeaway
But do one month's results prove that Stifel has a real feel for these stocks, or did the analyst just get lucky?

In my opinion, neither. As I argued earlier, Stifel made an easy call in downgrading Amazon last month. At 53 times trailing free cash flow, and 125 times trailing earnings, Amazon looked wildly overvalued. Today, the stock is selling for a more modest 41 times trailing free cash flow and "only" 91 times trailing earnings. But with analysts still predicting 23% annual profits growth for the company over the next half-decade, the stock still looks overpriced to this Fool.

In sum, I wish Stifel luck in improving its rating with today's buy recommendation, but I'm not optimistic.