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." Here, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Speaking of which…
In his recent book, The Most Important Thing, famed value investor and Oaktree Capital Management co-founder Howard Marks wrote: "The upside for being right about growth is ... dramatic [but] ... if you overpay, it takes a surprising improvement in value, a strong market, or an even less discriminating buyer (what we used to call a 'greater fool') to bail you out."

Judging from the report that analyst Dahlman Rose just issued on Rare Element Resources (NYSE: REE), it appears that Dahlman may have decided to bet on Marks' "greater fool" strategy.

Single analyst seeks greater fool
This morning, Dahlman Rose initiated coverage of Rare Element with a recommendation to buy, noting: "We like the straightforward metallurgy that is present at the company's Bear Lodge deposit and access to infrastructure that is present at this deposit. ... We believe that these aspects make the company an attractive candidate to be acquired by a producing rare earth company over the medium-term."

While this may sound encouraging, it's worth pointing out that Dahlman has yet to find a mining company it doesn't like. So far, Dahlman's made 22 recommendations in the industry, and every single one has encouraged investors to buy. Unfortunately, that hasn't always been good advice:


Dahlman Rating

CAPS Rating
(out of 5)

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

Kinross Gold Outperform **** (57 points)
Thompson Creek Underperform ***** 6 points (picked twice -- once right, once wrong)
Yamana Gold Outperform **** <1 point

Dahlman's record of accuracy perfectly illustrates why you might not want to pay Wall Street for investing advice. Over the three years we've been tracking its performance, Dahlman has managed to "beat the market" on less than 50% of its stock recommendations. Its record in the metals and mining industry is equally ambiguous. Out of 22 picks made to date, 11 have outperformed the market, while 11 more underperformed it.

Now, Dahlman suggests that it's time to hop aboard the rare-earth mineral momentum train -- after Molycorp's (NYSE: MCP) run from $14 to $79 a share set the industry afire, and after the 330% gain at Rare Element in the last year.

A logical conclusion
Dahlman's "logic" on Rare Element doesn't really jibe with the advice it gave on simultaneous recommendation and fellow rare-earth mineral play Avalon Rare Metals (NYSE: AVL) this morning. While Dahlman seems to think that the best chance of profiting from Rare Element lies in hoping for a buyout, the banker praises Avalon for its strength as a going concern. According to Dahlman, Avalon focuses on "heavy rare earth metals, which have increased in price less than light rare earth metals ... and therefore should see less of a contraction in price should the broader rare earth sector see pricing decline."

In other words, Dahlman's a bit worried that what's gone up could come crashing back down. It likes that Avalon hasn't gone up quite as much as Rare Element, and it likes Avalon's economics better as well. But you know what's even better than Avalon? Freeport-McMoRan (NYSE: FCX).

If Dahlman likes Avalon for the safety of its economics, it should absolutely love Freeport. As I mentioned last year, the miner boasts both GAAP profits and solid free cash flow, both of which Rare Element and Avalon lack. In fact, if you examine the list of Dahlman's recommendations, you'll find that this mining magnate and participant in the rare-earths run-up is currently Dahlman's single best-performing pick in the industry.

When you've got a proven performer like Freeport available, don't bother gambling on an unknown Rare Element (or even Avalon). Buy the best. Forget the rest.