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 ...
Today, we examine that most interesting of equity animals: the IPO. A little more than a month ago, the New York Stock Exchange welcomed a new member onto the public stage -- credit card specialist Visa (NYSE: V). Pricing at $44, Visa proceeded to close out its first day of trading with a 29% gain -- and it hasn't looked back since. Wall Street, in contrast, has looked back, and it has begun assigning ratings to the new security.

For example, a couple of weeks ago, we examined initiations of coverage on Visa by analysts Keefe, Bruyette & Woods, Cowen & Co., and Deutsche Securities. Three ratings, issued simultaneously, seemed like a lot at the time, but it pales in comparison to the cavalcade of ratings that poured in on Visa this morning.

That's not the only difference between the analysts that grabbed headlines two weeks ago and those doing so today. Today's raters, having much larger stakes in the stock's success, are more biased. They're also more varied in their opinions: Whereas KBW, Cowen, and Deutsche were unanimous in their acclaim for Visa, today's analysts take a more nuanced view. And finally, this latest pack has a much more varied performance record. See for yourself:

Quite a lot of numbers up there. Let me try to make sense of them for you. Setting Fox Pitt aside as an unknown quantity and focusing instead on its better-known peers, we find Wall Street analysts recommending Visa by a 2-to-1 stretch today. Among analysts who score better than a toin coss for accuracy, however, the margin drops to one for Visa (UBS), one neutral (Citi), and none against.

Nor does Visa's rating seem to correspond directly to the rater's stake in the IPO. The firm that holds the biggest stake in Visa (JPMorgan) likes the company, as do the two with smaller, 4.1 million-share stakes (RBC and SunTrust). The two "neutral" ratings hail from Piper Jaffray, which holds 5.7 million Visa shares, and from Citi, which has a stake more than three times that size.

Foolish takeaway
I don't see overt bias among today's raters -- but then again, considering the prominent part most of these companies played in Visa's IPO, I'd hope they would go out of their way to avoid letting bias creep into their ratings. Still, I'm less than thrilled with the quality of Visa's boosters today. Only one rater, UBS, scores in the top 10% of investors as calculated by CAPS. When your hard-earned money is on the line, you want to take your advice from someone with a record a bit better than being right 51% of the time.

Fortunately, Motley Fool CAPS gives you that advice, and for free. Nearly 2,500 of your fellow investors have congregated on CAPS to offer their own thoughts on Visa. Of these, 474 are All-Stars ranking in the top 20% of investors -- and 94% of these proven performers say Visa is a buy. For more details, and to learn the thoughts of our top-rated Visa-watcher, visit CAPS now.