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 ...
As markets across the country turn from green to red this morning, one stock is bucking the tide and rising. For this, Dell (Nasdaq: DELL) shareholders can thank JPMorgan and the upgrade it slapped on the computer maker this morning. Citing a 25% slide in the stock's price since it last reported earnings, JPM believes it's high time for Dell to begin its turnaround, now that its namesake founder is back at the helm.

I have to say, Fools, that while I'm not a big fan of Wall Street wizards generally, I like this upgrade a lot. Not necessarily because I agree with the conclusion, but because I like how JPM arrived at it. Expressly disclaiming "calls for a near-term profit spike at the company," JPM praised Dell's "moves into retail, increased focus on enterprise IP, and tighter cost controls." JPM readily admits that the computer industry is in for tough times in 2008, but it argues that further down the road, Mr. Dell's efforts will bear fruit in the form of better profits, stronger cash flow, and long-term sales growth.

Shocker!
I know, isn't it, though? Who gave Wall Street permission to start thinking long-term? I thought that was our thing.

Overall, thinking long-term has done well for JPMorgan -- but not exceptionally so. While the firm boasts a CAPS rating in the top 20% of investors, it also has a record of getting just less than half its picks right. For example, in the high-tech arena, JPM has endorsed:

What's more, a couple of these picks are approaching their one-year anniversary -- a far cry from the near-day-trading ways of some of JPM's compatriots. However, on those occasions when looking far down the road entailed taking its eye off the ball, JPM has lost points:

Foolish takeaway
Reviewing JPM's record, it occurs to me that thinking long-term might not be enough, if the analyst's thinking is flawed from the get-go. And at the risk of offending investors who've bought Dell on the Fool's say-so, I fear that's the case here.

The way I look at it, Dell may be cheap-er today than it was a couple months ago, but it's still a far cry from cheap. Changing hands for 16 times trailing earnings and 16 times trailing free cash flow, the stock remains too expensive for what most analysts believe will be a 13%-per-year grower over the next several years. Mind you, I applaud what Dell's doing to reinvent itself -- gambling that the cost of carrying more inventory will pay for itself with more retail dollars is a gutsy move. And you already know how much I like the firm's efforts to recapture its "cool" factor. But at today's price, the success of such moves is already being taken for granted and factored into the stock's price.

Long story short, my advice has to be: Dude, don't buy a Dell.

(Do the folks at Motley Fool Stock Advisor agree? How about the bargain hunters at Motley Fool Inside Value? Both have recommended Dell. Take free, 30-day trials of either -- or both! -- and find out.)