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 ...
Loud has been the lamentation, and great has been the gnashing of teeth, as shares of the Three Kings of Fertilizer plunged. Over the past few weeks, we've watched Potash Corp. of Saskatchewan (NYSE:POT) shed 10%, Agrium (NYSE:AGU) 13%, and Mosaic (NYSE:MOS) 15%, from their recent peaks.

Well, cry me a river, but I can't help noticing that the least of these three (Agrium) is still up more than 100% over the past year, that Potash has nearly tripled, and Mosaic is pushing four bags of fertilizer up an awfully steep slope. It's not just me noticing, either. Turns out, Canuck stock shop Canaccord Adams was watching all the while -- and yesterday, it took the stocks' pullback as an excuse to initiate coverage of all three stocks at "buy."

Why?
According to Canaccord:

[T]he fertilizer market will be robust for years into the future, specifically the potash and phosphate sectors. Prices are expected to remain strong as supply will not be able to meet the growth in demand over the next five years. With current pricing expected to rise into 2009 and 2010, earnings should also continue to increase.

OK. That's a simple enough buy thesis. But is simplicity a virtue? And even if it is, is it as much a virtue as accuracy? In other words, just how good a stock picker is Canaccord?

Let's go to the tape
Pretty darn good, as it turns out. According to CAPS, Canaccord Adams boasts a CAPS rating of 88.97 -- just shy of the top decile of investors. Canaccord has proven itself particularly adept at picking winning miners (admittedly, not a tough task these past few years):

Canaccord's not perfect, of course. But barring the odd misstep on an Iamgold or OYO Geospace, if a company's business revolves around digging stuff out of the ground, Canaccord usually calls it right.

Honestly, there's just one thing about Canaccord's three picks Wednesday that has me concerned. In each of its write-ups -- for Mosaic, Potash, and Agrium -- the analyst cites "valuation" as a key factor in the stock's favor. But if you actually take a look at the supposedly attractive valuations, what do you find?

Foolish takeaway
Now, I'm just a simple Fool. I make no pretensions to a special understanding of why fertilizer companies are different. But I have to say that I find these valuations somewhat frightening.

Far be it from me to contradict a proven mining expert like Canaccord when it says the stocks are cheap ... but be it even further from me to buy at these prices.