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 ...
On Monday, Wall Street standout Brean Murray opened the trading week with a new rating on Hewlett-Packard (NYSE: HPQ), telling investors to buy the stock. Arguing that "recent softness" following HP's controversial acquisition of Palm (Nasdaq: PALM) creates "an attractive entry point," Brean predicts HP will beat the Street when it reports earnings this evening, and keep on winning all year long.

And I have to give Brean Murray credit for courage, if nothing else. Advising investors to buy a stock less than 36 hours ahead of earnings takes real guts. But what about brains?

Let's go to the tape
Good news here as well, Fools. Reviewing Brean Murray's record, over the nearly four years we've been tracking its performance, reveals that this is indeed one of the good 'uns. Ranking comfortably within the top 10% echelon of investors tracked on CAPS, few investors on Wall Street boast a record anywhere near Brean's performance. What's more, within HP's home sector of Computers and Peripherals stocks, Brean simply shines:

Fools rush in where Wall Street fears to tread
Now I'll admit, Brean's is probably not a popular call right now. While a few investors praised HP's decision to purchase Palm, the vast majority of us panned it as an overpriced purchase of a stock heading to zero. Indicative of investor disdain, Hewlett currently sports only a mediocre three-star rating on CAPS. And yet, the more I look at the stock, the more I'm forced to conclude: Brean Murray is probably right again on this one.

Why is that? For two reasons: First and foremost, there's HP's record to consider. As I described a few weeks back in Keep Your Synergies. Show Us Results, HP has proven itself a master of the acquisition game, acquiring laggard companies left and right, rolling up their revenue streams, and improving their profit margins. While Palm will certainly be a tough nut to crack, HP has a record of cracking the whip, and shaping up the companies it acquires. (And speaking of records, Brean's own record of 73% accuracy in the computers space suggests it might well be right in predicting a similar result.)

Second, in panning the Palm acquisition, most of us (myself included) focused on Palm's core smartphone business, and argued that HP would have to be crazy to want to enter this ultracompetitive business, and contend with the likes of Apple (Nasdaq: AAPL) and Research In Motion (Nasdaq: RIMM). Crazier still to do so in alliance with Palm, a proven loser in this business.

More recently, though, analysts have begun wondering whether HP might have ulterior motives in purchasing Palm. Namely, it sees value in the WebOS operating system, and thinks it would make a jim-dandy platform upon which to build a tablet PC to do battle with Apple's iPad. According to the tech pundits, everyone from Acer to Dell (Nasdaq: DELL) to Google (Nasdaq: GOOG) itself is gearing up to contest the iPad's early lead in tablets. If HP aims to join this race, then perhaps Palm will prove its ace (in the hole.)

Drumroll, please
Last but not least, it's worth pointing out that as we head into first-quarter results, HP sports a stock price that cannot help but please even the most risk-averse investor. Trading for just over 10 times its trailing free cash flow, and projected to grow its profits at a 12.5% clip over the next half decade, HP appears to sell for quite a nice discount to intrinsic value -- and that's if the tablet PC idea doesn't even pan out.

If, on the other hand, Hewlett hews true to past performance and makes a success out of Palm ... keep your earmuffs handy, Fools. The applause could be deafening.