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 ...
What do you do when one of the best stock pickers on Wall Street looks a consumer-driven recession straight in the eye and recommends ... a retailer?

And not some consumer non-cyclical retailer, either. When Hilliard Lyons clambered out on a limb yesterday, it did so for a company that depends entirely on discretionary entertainment purchases: GameStop (NYSE:GME).

Call me a Fool, but a contrarian pick like this one gets my attention. And when it comes from Louisville-based investment banker Hilliard Lyons -- one of Wall Street's Best stock pickers as rated by CAPS -- I listen closely.

... And hear nothing
Unfortunately, to no avail. Because while we know that Hilliard likes GameStop (two separate sources confirm that the analyst has "initiated coverage"), we don't yet know why. Not one major news outlet is covering Hilliard's recommendation.

That's a crying shame. Out of the hundred-odd analysts we track on CAPS, Hilliard is unquestionably one of the best. The analyst gets more than 60% of its stock picks right -- far better than the average on Wall Street. What's more, Hilliard's picks beat the S&P 500 by an average of seven points apiece. Its recent winners include gaming and entertainment stars such as:

And while a 60% record of success carries with it the implication of 40% losses, Hilliard does a fair job of containing the damage on its losing bets:

So in short, this analyst is worth listening to. If only it were saying something publicly!

Recommendation by proxy
If you're feeling bullish on GameStop, but reluctant to buy the stock on an analyst's mere say-so, perhaps I can help. Here are a couple of horns upon which you can hang a bull thesis for GameStop:

• Macroeconomic: Consumers may not have a whole lot of scratch to spend on new games these days, but they may have games already purchased, already played, and ready to trade. It seems not unreasonable to expect that GameStop's used-game-trading business will benefit in tight economic times, by facilitating game-trading among cash-strapped consumers. As growth engines go, I'd call that one to bet on.
• Valuation: Not sure whether I've mentioned this before, but GameStop is cheap. Maybe not as cheap as its 15 P/E implies, but with $300 million in free cash flow generated over the past year, the stock still sells for just 18 times FCF. If GameStop can come anywhere near the 20% annual growth that most analysts project for it, it looks like a bargain to me.

Oh, and by the way, GameStop beat the analysts' estimates in each of the past four quarters.