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 ...
I admit it -- at first glance, I thought this was just a case of the pot calling the proverbial kettle black. When Wachovia made its brazen move to downgrade Goldman Sachs (NYSE:GS) on Thursday, my instinct was to say: "Hold on a sec. You just cost your shareholders two-thirds of their investment over the past year, and you're saying Goldman is the bad bank?"

Jon Stewart would probably call this "chutzpah." Whatever you call it, Wachovia's sure got it.

Let's go to the tape
After all, it's not as if Wachovia is always right with its predictions. Heck, it's not even right most of the time. According to our running tally of its picks on CAPS, we've got Wachovia pegged at no better than 49% accuracy.

And yet ... this is a banker, right? Talking about other bankers? It figures that however good (or bad) Wachovia is with overall forecasting of the future, it might be a bit better than average at predicting the future of financial companies. And as it turns out, it kind of is:

Granted, Wachovia still gets more financial picks wrong than right, but its mistakes in this sphere are significantly less costly to the investors who follow its advice:

What's more, let's not forget that the last time Wachovia made a prediction on Goldman's stock, the analyst nailed it. Rating Goldman Sachs a likely outperformer back in March, Goldman clocked out yesterday with nearly nine points of market outperformance in three months. Nice.

But now that it has taken its money off the table, Wachovia tells us to beware of holding Goldman any further. Why? Because "renewed economic fears, a likely slower pace of large capital raises, seasonally slower prime brokerage revenues" all threaten Goldman's future outperformance. Heretical as it might sound in investor circles, Wachovia uttered the unthinkable yesterday: Goldman Sachs, it seems, "is not immune to weaker markets and likely lackluster summer conditions."

Gasp!
I know, I know. It's like being told there's no Santa Claus, that the Easter Bunny doesn't really lay eggs, and that your mom is really the "tooth fairy," all in one day. But there it is. Goldman Sachs is mortal.

Foolish takeaway
Now that we've broken that story, let me address a bit of dicta contained in Wachovia's downgrade. Specifically, after telling us that Goldman Sachs is a hold, Wachovia went on to insist that in its mind, Morgan Stanley and Raymond James (NYSE:RJF) remain buys.

But here's the thing: Goldman's got a lower P/E than either of the other two banks named. Most analysts expect it to grow faster. Lord knows it's more profitable. And in the process of panning Goldman, even Wachovia felt compelled to admit that "GS is the top name in the space."

Seems to me that if Goldman isn't a buy at these prices, no one else is, either.