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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst ...
As the market emerged from the tub Monday, and shook itself off from the bath it took last week, DryShips (NASDAQ:DRYS) bulls in particular were happier puppies than most.

News that Cantor Fitzgerald raised its price target to $8 sent DryShips shares moving sharply toward that target. Why? Well, Cantor thinks the stock's worth at least $7.80 per share based on its: "charter-adjusted NAV." Quoth the analyst: "With nearly all of its dry bulk fleet fixed under period charter contracts, we suggest the primary upside catalyst for the stock over the near-term will be securing employment and financing for the 5th and 6th drilling rigs." (Read more about why drilling may be "where it's at" for DryShips in last month's report on Deutsche Securities' DryShips upgrade.)

So what?
On its face, that's not a particularly groundbreaking observation. In fact, Cantor's analysis differs from the opinions voiced by Deutsche only in degree (Cantor thinks DryShips is worth $8 bucks; Deutsche would pay a ten-spot). Problem is, when it comes to picking winners in the shipping industry, Cantor's record is about as seaworthy as a hull manufactured from Swiss cheese.

Now don't get me wrong -- Cantor's not all bad. These are the guys who knew way back in '06 that Google (NASDAQ:GOOG) was the stock to bet on in Internet, and that eBay's (NASDAQ:EBAY) best days were behind it. Even in the shipping sector, Cantor's made a couple of good calls from time to time. However, some of the holes in its thinking are big enough to float a Panamax through:

And that's bad news for investors hoping to hitch a ride on Cantor's coattails today.

You see, Cantor believes DryShips will earn $1.05 per share this year, then bump that up to $1.22 next year as dry bulk rates strengthen, and the company's drillships come on line. Maybe Cantor's right about DryShips ... but if it is right, then it's the only one out of more than a dozen analysts who follow the stock to make the correct call. Ask anyone else in the industry, and they'll tell you the company's more likely to earn $0.90 in 2010 -- a full 28% less than Cantor expects -- and that DryShips' earnings will continue to drop steadily over the next five years.

What's more, in defending its way-out-on-a-limb-analysis, Cantor reminds us that "In 4Q:09, the dry bulk market enjoyed its best quarter since the financial crisis over a year ago. Continued strength in iron ore imports into China, combined with acute port congestion issues, drove Capesize rates to 12-month highs, while strong seasonal coal and grain demand helped to support the smaller Panamax and Handymax vessel classes."

Foolish takeaway
Problem is, that was last year, and this is this year. And this year, no less a luminary than Goldman Sachs tells us that Cantor is dead wrong about Chinese demand continuing to spike.

To the contrary, just last week Goldman warned that Chinese demand is waning, and pulled its outperform rating on Freeport-McMoRan (NYSE:FCX) in response to a perceived weakening in demand for metals in the Middle Kingdom.

Put it all together, and I'm very much concerned that in recommending DryShips, Cantor's fixed its compass on the wrong stars, and is sailing over a waterfall. My advice: Abandon ship.