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 ...
Ordinarily, when speaking of "the best," I'm being generous with the term, describing analysts who are perhaps a cut above ordinary, but not exactly stellar. Today, though, I've got something special for you: A trio of just-in ratings from one of the literal best in the business.

For nearly half a year, Swiss banker UBS has performed the investment banking equivalent of cutting up its credit cards: It's assigned, and stuck with, that rarest of Wall Street ratings, as it labeled some of the biggest names in consumer credit "sell."

No more. Today, UBS put the scissors back in the drawer as it upgraded three big credit card names -- American Express (NYSE:AXP), Capitol One (NYSE:COF), and Discover Financial Services (NYSE:DFS) -- to "neutral." According to the banker, while significant regulatory and consumer credit risks remain in all three stocks (with Capital One looking particularly vulnerable), "the current valuations are generally consistent with these expectations."

So I guess that's good news of a sort. UBS fears things will get worse before they get better, but at least agrees that the stocks are now selling for a price that assumes that "worse" (if not the worst). But is UBS right? Have we finally hit bottom in the credit card space?

Let's go to the tape
For clues to this banker's prognosticating proficiency, we turn once again to its record on CAPS. What we find there is that UBS gets these things right much more often than it errs. UBS correctly predicts a stock's trajectory nearly 57% of the time, and in so doing, earns itself a place in the top 4% of investors, helped by financial picks such as:

*For every stock but Visa and MasterCard (which UBS still actively endorses), these are the margins by which UBS had already "beat" the S&P by the time it closed the picks this morning.

Now, that's not to say that UBS is perfect. Even this Swiss banker has found its watch off by a tick or two when trying to time stocks like ...

But I must admit that going five-for-five on the world's biggest credit card companies, and beating the market by double digits (or more!) on each of them -- that's impressive.

Foolish takeaway
Mind you, I don't necessarily agree with UBS on today's rankings. UBS continues to insist that Visa's the best of the bunch -- and while I'll grant you that it has the highest growth estimates, it also has the highest price-to-earnings ratio (negative for the trailing 12 months, with a 31.6 "forward" multiple), and a price-to-book value of 3.2. To my mind, the deep value pick here is the stock UBS likes least: Capital One.

With a P/E of 10.4, growth estimates hovering around 13%, and selling for just 0.6 times its book value, Capital One looks both beaten to a pulp, and beaten down enough to make it a bargain-basement buy.