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 ...
No two ways about it: Monday was a bad day to be a gold investor. Our trading week started off yesterday with a series of eight downgrades in the sector, each and every one of 'em courtesy of Brit banker HSBC Securities.
HSBC grouped the gold stocks into two sets, downgrading Agnico-Eagle Mines
Wish I could tell you folks, but that's just the thing -- we don't know why. None of the major news outlets reported the reasoning behind the ratings. Even StreetInsider.com, which as its name implies often has the inside skinny on this kind of news, drew a blank, saying only that the ratings happened -- not why they happened.
As an individual investor myself, I know there are few situations more frustrating than the one gold investors find themselves in today. You're being asked to take the analyst on faith -- to sell, without knowing why you're selling. But fortunately, with the advent of Motley Fool CAPS, we no longer have to heed the bankers' command to, "Just trust us." Today, we can check the analyst's record -- to steal a phrase from President Reagan, we can "trust, but verify."
What we know
While we may not know the particulars on HSBC's negative stance on gold, at CAPS we do know that the analyst has a good track record on such calls. With more than two years of data at our fingertips, we can tell you that:
- HSBC ranks in the top 10% of investors tracked by CAPS.
- It does this despite outperforming the market on only about 51% of its predictions ...
- ... because when HSBC is right, its winners so far outweigh its losers that, on average, an HSBC recommendation beats the S&P 500 by better than three percentage points.
And that's just the general stats, considering the entire universe of stocks that HSBC covers. Within the "metals & mining" sector in particular, HSBC simply shines:
- 56% of the time that HSBC says a mining stock will go up (or down), it does just that.
- Over the course of the time we've been tracking its picks, HSBC's mining recommendations have racked up a combined 119 points worth of market outperformance.
- And it's getting better as time goes by. Right now, 70% of HSBC's active picks in the sector are beating the market. In particular, HSBC is up 30 points on its bearish bet against Stillwater Mining
(NYSE:SWC), and on the flip side, up another 10 points on its recommendation to buy AngloGold Ashanti (NYSE:AU).
Of course, the question remains: Why exactly is HSBC down on the gold sector these days? If you want my opinion (which in conjunction with $1.29 plus tax, will buy you a large coffee at 7-Eleven), my hunch is that HSBC has observed the rise in gold stocks since their lows of October, and decided this bull has run its course. Or it could be a valuation call. Reviewing the new sell ratings in particular, I have to say that the price-to-earnings ratios on Agnico-Eagle and Yamana in particular look a mite high relative to growth expectations.
But the truth is, your guess is as good as mine about what's behind HSBC's thinking. All we really know at this point is that this banker seems especially savvy when it comes to metals stocks.
And if you do know more than that, then do a Fool a favor, eh? Come on over to Motley Fool CAPS and clue us in to what you're thinking; 125,000 of your fellow investors are listening.
Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1,085 out of more than 125,000 members. The Fool has a disclosure policy.