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." While the pinstripe-and-wingtip crowd is entitled to its opinions, down here on Main Street, we've got some pretty sharp stockpickers, 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.

And speaking of the best ...
Apple (Nasdaq: AAPL) giveth and Apple taketh away. Many a semiconductor and gadget hardware maker has ridden Cupertino's coattails to stellar gains over the past couple of years, based on their presence in the latest-and-greatest version of the iPod, iPad, and/or iPhone product lines.

This week, Skyworks Solutions (Nasdaq: SWKS) went the other way, taking an uppercut to the chin as Charter Equity analyst Ed Snyder downgraded the stock to a sell. Why? Because Skyworks is supposedly getting less action in the iPhone 5 than it got in last year's version.

Snyder's checks along the iPhone-manufacturing food chain indicate that Avago Technologies (Nasdaq: AVGO) and TriQuint Semiconductor (Nasdaq: TQNT) are stealing some chip spots from Skyworks in this year's iPhone, dropping the company's revenue contribution from each unit sold from about $4 to as low as $1. Considering that Apple stands for 25% of Skyworks' wireless segment sales, according to Snyder, that would be a serious problem.

That said, Snyder notes that the Skyworks management team is very persuasive and might still win back some -- but not all -- of Apple's good graces. Assuming that the phone is delayed until August, Skyworks would have until late June to make something happen, as that'd be when the final design is etched in stone.

It looks like Charter did its homework and has a handle on how this investment thesis might go wrong. So far, so good -- but should we listen to what this firm has to say?

As it turns out, few analysts have a stronger track record in the semiconductor industry than Charter's. It's a small, boutique-ish firm with a singular focus on chips and only 5 recommendations for that sector in our CAPS system -- but 4 of them have been correct for a superb 80% accuracy rating:

The firm has also been correct on Skyworks as it rose to its recent, Apple-powered heights: Charter slapped an "outperform" rating on the stock way back in 2007 and watched it more than double before getting out in the summer of 2010. As Shakespeare might have said: "Neither a cheerleader nor a basher be." Charter seems unafraid to be a straight-shooter on this stock through ups and downs.

Foolish final thought
Charter's thesis makes sense, comes supported by fact-checking legwork, and can rest on the laurels of an impressive track record in the sector. That's not a bad trifecta of factors in favor of the negative conclusion.

Don't take the note as straight gospel, though. For one, we don't know for sure that Charter's sources are in a position to share the needed information with Mr. Snyder, nor that they would necessarily send all the right signals to a tiny analyst shop. On the other hand, Snyder assumes that the iPhone 5 has indeed been delayed and bakes that theory into a somewhat rosier future than would otherwise be the case. We've seen reports both for and against that particular assumption, so that's a judgment call right there.

All told, I think we're looking at a buy-in opportunity on Skyworks today. The stock has fallen 25% from highs set in February, baking in plenty of bad news and potential share losses in the process. Smartphones, tablets, and a plethora of other communications-heavy gadgets will need to buy what Skyworks and its rivals are selling for years to come; there will always be some jockeying for position, but nobody will kill Skyworks.

I'm taking this opportunity to put an "outperform" rating on Skyworks in CAPS. It's a risk-free way to keep track of these gut checks without putting real money on the line.