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 ...
Detroit-based investors woke this morning not to the rousing chords of WCSX, 94.7 FM playing on their clock radios, but instead to the ominous rumble of ursine growling. Wall Street analyst Bear Stearns did a double downgrade today, slashing its rating on Ford (NYSE: F) from "outperform" to "peer perform," and dropping General Motors (NYSE: GM) from "peer perform" to "underperform."

Bear expressed "concerns that both the propensity and ability of the automotive consumer to purchase vehicles is deteriorating at an accelerating rate." Translation: People can't afford new cars, and they're unwilling to spend money they don't have. As a result, Bear believes that "industrywide sales and profit expectations remain too high."

That raises two questions in my mind. First, if the expectations "remain too high," why was Bear recommending Ford before the downgrade? Doesn't "remain" imply that expectations were too high to begin with? And second, is Bear right to be pessimistic at all?

Let's go to the tape
To gauge whether Bear knows what it's talking about, we turn once again to Motley Fool CAPS for a look at the analyst's record. With a CAPS rating of 93.66, Bear ranks in the top 10% of investors as tracked by CAPS. But it's reached that goal despite a lack of consistent, accurate picks. In fact, Bear's analysts are wrong nearly as often as they're right, as illustrated by picks like:

Of course, Bear does get a lot of things right -- and with a mere 53% accuracy record, it has to get them really right in order to earn a high ranking on CAPS. Here are a few of its better ideas:

Bear does an undoubtedly fine job picking many stocks. Yet I can't help noticing that whenever this analyst kicks the tires on an auto-industry-related company, those tires promptly fall off.

What's more, on GM and Ford in particular, we've got Bear on record for two picks apiece to date -- and an uninspiring 50/50 record on each. Bear's August 2006 recommended sale of GM underperformed the market, but its subsequent sell rec in October 2007 beat the market soundly. Conversely, a recommended buy on Ford in August 2006 panned out, while a repeat in September 2007 did not.

Foolish takeaway
All in all, I find Bear's downgrades today unconvincing. Sure, Bear could be right on one (or both) companies. But it's no more likely right than a flipped coin.

Got an opinion on the Detroit automakers? We've got a place to voice it: Motley Fool CAPS: It's fun, it's free, and it just might make you famous.