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 best ...
Solar shares soared yesterday on the back of two apparently "positive" events. First up, reports out of Germany suggested that the Christian Social Union (a one-state sister party to the larger Christian Democratic Union) would push for a delay in the country's planned rollback of solar subsidies. Some of the affected "feed-in tariffs" could have been extended well into summer, the key selling season for sun-based systems -- boosting solar sales considerably.

Second, and in partial response to this news, Wall Street analyst Jefferies & Co. rolled out a solar "subsidy" of its own -- a series of four upgrades. Arguing that: "potential disruptions around the German FIT" had dropped the valuation on solar shares far enough to "leave us incrementally more constructive on some names," Jefferies upgraded each of China Sunergy (NASDAQ:CSUN) , Solarfun (NASDAQ:SOLF), and Suntech (NYSE:STP) to hold. It's even more bullish on SunPower (NASDAQ:SPWRA), which alone among the upgrades, received the coveted "buy" rating.

In essence, Jefferies made a valuation call, saying that China Sunergy, Solarfun, and Suntech have fallen enough already, and were due to take a breather, while SunPower in particular had fallen so far that it's actually due for bounce. But now here's the bad news: Jefferies is a simply miserable solar analyst.

Let's go to the tape
Mind you, the emphasis here should be on "solar." Elsewhere in the market, Jefferies' record is good enough to rank this banker in the top quintile of investors tracked by CAPS. In recent months, it's picked sizeable winners in the form of such stocks as Biogen Idec (NASDAQ:BIIB) and Starbucks (NASDAQ:SBUX).

But if you're looking to Jefferies to "call the bottom" in solar, well, you're going to have to look a bit further. Jefferies just isn't very good at calling bottoms. Not only has the analyst been abysmally wrong on hi-profile names like First Solar (NASDAQ:FSLR), but also on most of the firms it's talking about this week.

Take Suntech for example. Way back on November 17, 2008, Jefferies told investors to buy Suntech at the then-current price of $11.40 per share. The timing couldn't have been more awful. Within a week, the stock shed more than 40% of its value to close at $6.69 -- at which point Jefferies spun on a dime and told investors to stop buying, and just hold whatever they had left.

And what happened next? You can probably guess -- Suntech proceeded to soar nearly 130% to close at $15.30 per share on August 21, 2009. Having missed out on all these profits, Jefferies finally told investors to sell. (And finally it made a right call. Suntech has since underperformed the market by 15 points.) And lest you think this is an isolated incident ...

The more things change ...
Investors familiar with Jefferies' record, therefore, won't be surprised to see that the several names Jefferies upgraded yesterday, are already falling back today. Why? Well, as it turns out, the rumors of a reprieve in the German subsidy cut proved to be just that -- rumors.

This morning, the German Minister of the Environment rejected calls to extend the subsidies, declaring the potential cost of such action "tremendous" -- and confirmed the feed-in tariffs will be slashed effective April 1.

Foolish moral(s) of the story
There are actually three morals to today's tale: First and most obviously, don't listen to Jefferies on solar (duh.) Second and corollary, before buying anything on any analyst's say-so, make sure to check the analyst's record on CAPS -- it only takes a moment, it's totally free, and it could save you thousands of dollars in lost profits.

Third and most generally: Use your head, Fool. If some Wall Street analyst tells you to buy Sunpower because some folks in a foreign land might decide to throw money at it, take a look at the stock itself, and decide whether it's worth owning on its own merits. In Sunpower's case, what you've got here is a stock carrying considerable debt on its balance sheet, burning cash at a rate that's likely to increase that debt load, and trading for more than 30 times its alleged "profits" ("alleged" because, if a company isn't generating cash, it's really just accounting profits that we're talking about.)

Fool, you're smarter than that.

Let me know what you think in the comment section below!