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" …
A few weeks ago, I applauded the impeccable logic behind Standpoint Research's recommendation to buy Best Buy (NYSE: BBY). Selling for the same price the stock carried 10 years ago, but with 10 times as many stores as it had back then, Best Buy was obviously worth more than Mr. Market was charging for it. Running the numbers myself -- the P/E of 10, the 12% growth rate, the modest 1.5% dividend -- I concluded the stock was due for a nice bull run.

Gratifyingly, Best Buy then proceeded to gallop ahead 25% over the next month. But now that it's had its run, and investors have enjoyed their fun, the question arises -- is there anymore profit in store for us? I sure think so, and this week, ace stock picker RBC Capital agreed with me.

The Best is better than all the rest
Taking the pulse of the American consumer, RBC opined yesterday that in the current economic environment, "there is relatively little incentive these days for consumers to go out and buy a TV or a laptop in June or July." Instead, consumers are hoarding their pennies today, with plans to spend them during the holidays.

While a bird in the hand is worth two deeply discounted birds in a Black Friday circular, RBC still thinks the increasing seasonal shift in sales is a good thing for Best Buy. Over the months between now and Christmas, RBC believes "discount retailers" that compete with Best Buy for big-ticket sales -- among which I'd include Sears Holdings (Nasdaq: SHLD), Target (NYSE: TGT), Wal-Mart (NYSE: WMT), and Costco (Nasdaq: COST) -- will have difficulty prying open consumers' wallets. So when the holidays do roll around, there will be plenty of consumer cash remaining to spend at Best Buy.

As a result, RBC named Best Buy its literal "top pick." But is Best Buy truly that much better than all the rest? Is RBC?

Let's go to the tape
Yes on both counts. To see why, let's start with RBC's record in the Specialty Retail industry:

I've got O'Reilly on the chart up there for a reason that stems from an aside RBC tossed into this week's Best Buy upgrade. In contrast to the benefits a shift to seasonality offers Best Buy, "the opposite appears true for non-discretionary retailers: consumers seem to be deferring maintenance on their vehicles and directing a greater portion of their spending away from discount retailers during the peak holiday shopping season," RBC noted. [Emphasis added.]

So while you might not think that auto parts have much to do with hawking big-screen TVs and home audio systems, RBC sees a single trend affecting both types of companies. Its past performance suggests it has some good insight into this space.

Foolish final thought
I have to admit that I'd never think to seek clues to Best Buy's future by of examining the economic interplay between automobile maintenance and upscale home-electronics retailing. All the same, I agree with RBC's conclusion.

In Best Buy, I see a stock selling for barely 12 times earnings, expected to grow these earnings at nearly 12% per year over the next five years, and paying its investors a tidy 1.5% dividend while they wait. As Standpoint highlighted last month, Best Buy sells for not much more today than it fetched 10 years ago -- in other words, a bargain. To me, the stock's price today is exactly what its name states: a best buy.