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 ...
Megabanker JPMorgan Chase, in upgrading Blockbuster (NYSE:BBI) yesterday, advised investors to "overweight" their portfolios with the movie renter. And what happened next? The stock dropped a penny yesterday and is down three more as I write this afternoon -- not quite the result you expect from an upgrade.

So what's the frequency, Kenneth? Is there some reason investors are viewing JPMorgan's endorsement of Blockbuster as a contrarian indicator?

Let's go to the tape
At first glance, you might not think so. According to CAPS, JP is one of our better players -- a CAPS "All-Star," no less, with a record better than nearly 85% of our other players. Its record includes winners in industries related to Blockbuster's -- movie streaming, and game and movie retailing:

Granted, its record elsewhere in retail leads much to be desired, as does its call on a direct competitor.

So if JP's record overall isn't bad, and its record in the movie and gaming retail/rental sphere looks mostly decent, why is Mr. Market treating its latest Blockbuster pick as if it were busted from the get-go?

My guess: JP basically said that it's making this a literal "Blockbuster night" and doesn't expect to keep its buy rating much longer. According to the analyst, Blockbuster's Q4 results will exceed expectations because over the course of the Hollywood writers' strike, in the absence of new television programming, people probably rented more movies to fill the evening entertainment vacuum. JP also suggests that 2007 was such a great year for movies that home viewers probably rented more of them. Addressing these points in order:

Short-term thinking
JP is making it clear that there's an expiration date on its endorsement. "Our call is short term," it said. The company is essentially saying that during a quarter when there was nothing on the tube, Blockbuster could make a profit. Now that the writers are back at their desks, the converse should be true -- if the tube's lit again, then Blockbuster is in trouble.

And speaking of lit tubes ...
What was JP smoking when it wrote that bit about the great movie season? Did this analyst somehow miss the fact that last weekend's Oscars attracted the lowest viewership in four decades?

Foolish takeaway
To sum up, JP seems to expects one good quarter out of Blockbuster, and then a bust. To me, this foreshadows a downgrade in Blockbuster's future -- hardly a prospect you'd expect to support the stock price. Second, half of JP's explanation for why even the one quarter would be good looks ridiculous on its face. Now tack on the fact that Blockbuster is still losing money and burning cash, and I think you'll agree there's a good reason audiences aren't cheering this upgrade.