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." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)

Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We 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.

Amazon.com: king of the retail jungle?
The war is over, and Amazon.com (Nasdaq: AMZN) has won. Or so says Wall Street wizard William Blair, which yesterday upgraded shares of the e-tailer to "outperform," while simultaneously stripping both Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) of their "outperform" ratings, downgrading them to "market perform."

Why? It's simple, really. For one thing, Amazon's virtual storefront and partnerships with third-party retailers allow it to offer customers "78 times" the variety of goods found at your run-of-the-mill bricks-and-mortar store. Moreover, Blair opines, Amazon's "pricing model is superior" to those of big-box retailers like Wal-Mart and Target. Whereas the latter two stores charge "sharply higher" fees when asked to ship wares directly to a customer's doorstep, Amazon tries to give its customers a path to free shipping. Even if you don't pay the $79 annual fee for "Amazon Prime," the company routinely ships free any order $25 and up -- a policy Target and Wal-Mart have yet to adopt.

Advantage: Amazon. And Blair thinks the advantage is decisive. But is it right?

Let's go to the tape
There are at least a couple of reasons to quibble with Blair's logic on this one, beginning with the analyst's record at picking retail stocks. Now, "retail" comes in many varieties -- multiline, specialty, "Internet & catalog," and so on. But a close examination of Blair's record reveals that it's not particularly good in any of them. Across the several retail industries, Blair's recommendations outperform the S&P 500 about seven times out of 15 -- a sub-50% record for accuracy.

Over the years, Blair has been right about Costco (Nasdaq: COST), but wrong about Wal-Mart. Blair correctly predicted the demise of Circuit City, but mistakenly assumed this would help Best Buy (NYSE: BBY) outperform the market:

Company

Blair Rating

CAPS Rating
(out of 5)

Blair's Picks Beating
(Lagging) S&P by

Circuit City Underperform * 95 points
Costco Outperform ***** 4 points
Wal-Mart Outperform *** (59 points)
Best Buy Outperform ** (73 points)

And call me crazy, call me a Fool, but I think Blair's getting set to be proven wrong again.

Amazon.com: Buy it now?
Now don't get me wrong. I actually agree with Blair's major thesis: Amazon has a great business advantage over its rivals, in that it sells goods cheaper. Just last week, The Wall Street Journal ran a graphic comparing the prices of three high-end electronics devices (a Canon digital camera, Vizio LCD TV, and Sony Playstation) offered for sale on Walmart.com, Target.com, and Amazon.com. There, laid out for all the world to see, was proof positive of the price disparity: In all three instances, Amazon was able to beat its competitors' prices ... so long as sales tax was not applied.

And that's the problem with Amazon. A great deal of its price advantage derives not from the company's generous shipping policies, but from its legally questionable decision not to collect sales taxes in 90% of the states in which it does business. As the Journal's piece makes clear, though, when Amazon does collect taxes, such as in New York state, it quickly loses its advantage. In fact, in two out of the three cases surveyed by the Journal, when sales tax was applied, the Amazon price was higher than the prices charged at Wal-Mart and Target. That would also help the struggling Best Buy as well and shouldn't hurt Costco either.

Foolish takeaway
This could prove a problem for Amazon, as a movement spearheaded by the Alliance for Main Street Fairness, and endorsed by multiple (and tax-hungry) state legislatures, gains steam. Across the nation, Amazon rivals, including many of the companies named above, and Sears Holdings (Nasdaq: SHLD), and others besides, are demanding that states level the playing field and pass laws requiring Amazon to collect taxes when it sells goods to customers in those states.

Right now, we're in a race to see whether the economy improves fast enough to salvage state and local tax receipts, and take some pressure off Amazon -- or whether cash-starved states try to stuff Amazon into their spending gaps. If things get better, faster than expected, then great. Amazon may be allowed to retain its advantage, and its rivals will be out of luck. But if, as I fear, things get worse before they get better, well ... let's just say that at 68 times earnings, Amazon.com has a long way to fall.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 516 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Best Buy, Costco, and Wal-Mart are Motley Fool Inside Value selections. Amazon.com, Best Buy, and Costco are Motley Fool Stock Advisor recommendations. Wal-Mart is a Motley Fool Global Gains selection. Motley Fool Options has recommended a diagonal call position on Wal-Mart. The Fool owns shares of Best Buy, Costco, and Wal-Mart.

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