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.

Standing for something
Sing along with me now, as we survey today's latest banking upgrade (with apologies to Foghat):

Goin' to the Citi, got you on my mind,
Country sure is pretty, I'll leave it all behind,
This is my decision, I'm comin' home to stay this time.

'Cause I'm a fool for the Citi ...

Yes indeed, folks. Today we have a true, potentially foolish (small "f") rating for you. As you've probably guessed by now, it involves Citigroup (NYSE: C). Last night, in a fit of apparent madness, one of the best stock pickers in the business threw caution to the wind and recommended that you buy shares of Citi -- predicting this $39 stock will hit $55 within a year .

As Standpoint explains, it has maintained an "underweight" rating on banks since 2007. I suspect the reasons for this are obvious. But as today's headlines are dominated by news of Greece's de facto bankruptcy, and America's perhaps de jure insolvency (through refusing to raise the debt ceiling), banks are looking riskier than ever. Perversely, this seems to be what attracted Standpoint's attention to Citi: "During the last 90 days, financials have underperformed the S&P by 1000 bps and Citigroup has underperformed by 1500 bps. We think this is a good time to reduce our bet against this industry while taking a longer term view" on the stock's attractiveness.

Relative to the alternatives, Standpoint seems to think Citi's got the most bounce-ability of the bunch. I disagree.

Green eyeshades investing
Let's review a few numbers, and I'll show you why:


Return on Assets

Return on Equity

Profit Margin

Wells Fargo (NYSE: WFC) 1.1% 11.0% 19.0%
JPMorgan Chase (NYSE: JPM) 0.9% 11.4% 22.0%
Goldman Sachs (NYSE: GS) 0.8% 10.4% 20.0%
Citigroup 0.5% 6.0% 15.0%
Bank of America (NYSE: BAC) negative negative negative

Source: Yahoo! Finance.

Standpoint speaks the truth about Citi's recent underperformance -- but Citi has lagged for good reason. Of the five banks named above, only one "boasts" numbers worse than Citi's. Sadly, it's also one of the two big U.S. bankers that Standpoint has endorsed in recent years, Bank of America.

Problem is, when Standpoint recommended buying B of A last year, investors who followed its advice wound up underperforming the market by 37 percentage points. (The other largish U.S. banker Standpoint recommended, PNC Financial (NYSE: PNC), did almost as badly -- lagging the market by 8 percentage points. In contrast, the analyst has enjoyed more success with banks of $2 billion market cap and under.)

Where the money is
Considering the difficulty Standpoint has had making a buck on big banks, a Fool might wonder why the analyst keeps coming back to the industry. If you ask Standpoint, I suspect they'd answer you with Willie Sutton's famous (if historically unreliable) quip: "Because that's where the money is."

After all, with Citi selling for just 0.67 times book value today, it's certainly got more upside potential than JPMorgan at 0.94 times book, Goldman at 1.02 times, or Wells with its 1.18 P/B. It stands to reason that over Standpoint's "longer term view," any improvement in quality at Citi should close the valuation gap with its rivals, and generate outsized profits for investors.

Foolish takeaway
I don't necessarily disagree. I just think Standpoint's standing in the wrong teller line. To me, the better bet in banking remains Capital One (NYSE: COF). Selling for 0.8 times book, it's priced between ultracheap Citi and its pricier peers. Boasting returns on both assets and equity that outclass other megabanks, and a better profit margin, it's also arguably worth a higher valuation than the marquee megabanks.

Now that Capital One's poised to catapult into the position of the nation's sixth-largest bank by deposits, I think it holds more potential than Standpoint's selection. My advice: Don't be a fool for Citi. Go for the best combination of low price and high profits, and put Capital One in your wallet instead.

Fool contributor Rich Smith does not own shares of (or short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 464 out of more than 170,000 members. The Motley Fool has a disclosure policy.

The Motley Fool owns shares of JPMorgan Chase. The Fool owns shares of and has opened a short position on Bank of America. The Fool owns shares of and has created a ratio put spread position on Wells Fargo.

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