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 ...
Shares of Motley Fool Stock Advisor recommendation Priceline.com (NASDAQ:PCLN) are soaring this morning, apparently boosted by an upgrade to "outperform" from Swiss banker Credit Suisse.

I say "apparently" because, so far as I can tell, that's the only catalyst for the stock price's move. There’s no other news of note -- and even the upgrade itself hardly seems to qualify as "news" ... because we don't know what inspired it. None of the mainstream media has yet reported on Credit Suisse's reasoning. So all we really know at this point is that: (1) Credit Suisse was neutral on Priceline last week, and (2) on second thought, it's bullish today.

Oh, and (3) -- that when it comes to picking winners (and losers), Credit Suisse ranks in the top 5% of CAPS players, boasting a CAPS rating of 95.63.

Let's go to the tape
As an individual investor myself, I know how confusing it can be to see a "buy" rating stuck on your stock, but not know how it got there or whether it's justified. Confusing, but all too common. When something like this happens, though, there is at least one place an investor can turn for guidance and perspective: Motley Fool CAPS.

Here, we've been tracking Credit Suisse's performance for more than two years, measuring how well its picks have turned out historically. The verdict: Over the long haul, this analyst guesses right about 54% of the time -- which may not sound great, but like I said, it's good enough to outperform 95% of the rest of the investing world.

To illustrate, here are a few of the calls it's made right in recent months ...

... and here are a few that it's made wrong:

As you can see, Credit Suisse seems a bit conflicted over the price of oil. On the one hand, it's bullish about the oil majors -- and taking a pounding for its optimism. On the other hand, CS also recognizes that people will continue to travel to some extent no matter how much it costs them in fuel. Hence, its bold call in favor of much-maligned airline United Airlines -- a "buy" rating for which Credit Suisse has been well rewarded.

Foolish takeaway
Judging from today's trading action, investors appear to be ignoring the lack of detail in Credit Suisse's upgrade, and taking it on faith. I agree, and for two reasons:

• First and foremost, the analyst has a superb record, one that I expect will translate well into superb performance for Priceline over time. The analogies between this pick and CS's endorsement of United Airlines are obvious, and I expect Priceline's stock to perform similarly well.
• Second, and just as obvious, Priceline is cheap, cheap, cheap. Even after the post-upgrade bump, this stock sells for less than 16 times free cash flow, versus a five-year growth rate that most analysts peg at close to 27% per year. That's a huge margin of safety, and it's why I personally rated the stock an "outperform" on CAPS last month.

And yes, if you really want to know, it's nice to have the validation of seeing a star stock-picker like Credit Suisse agreeing with me today.