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

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 ...
Bad news for IBM (NYSE: IBM) shareholders today: Davenport just doesn't love your stock anymore. Oh, Davenport's not totally against IBM. To the contrary, the analyst believes that we'll see the company "continue to gain hardware market share in Q3 against both Hewlett-Packard (NYSE: HPQ) and Oracle (Nasdaq: ORCL)." Regardless, this morning, the Richmond, Va.-based stock broker announced that with IBM now within just a few percentage points of its published $189 target price, it's time to pull the plug. Accordingly, Davenport downgraded IBM to "neutral."

So what?
Fair question. I know, from looking at reader comments, that a lot of you are skeptical of Wall Street with its continuous stream of buy, sell, and hold recommendations. Some of you question analysts' motives in making them, while others argue that analysts are too often wrong on their recommendations and don't deserve to be paid attention to in the first place.

Davenport isn't one of those analysts. You don't often see its name highlighted in big IPO underwritings, so Davenport lacks conflict of interest in that regard. And as far as the accuracy of its recommendations goes … let's just say that you could do a lot worse than listening to Davenport:


Davenport Rating

CAPS Rating
(out of 5)

Davenport's Picks Beating S&P by

Oracle Outperform **** 78 points
Adobe (NYSE: ADBE) Underperform *** 21 points
American Software (Nasdaq: AMSWA) Outperform ** 22 points (picked twice)

Although no analyst is perfect, and even Davenport makes its fair share of mistakes, this analyst has done a mostly fine job of picking winners for its clients over the years. On CAPS, Davenport ranks among the very best stock-pickers we track (literally) and outperforms nearly 98% of the world's investors. On average, it gets 60% of its guesses right, and the average Davenport pick goes on to beat the market by about 12 full percentage points.

In short, if you're going to listen to someone with concerns about IBM, Davenport's a good place to start -- not least because, since first recommending the stock back in 2007, Davenport's IBM recommendation has beat the market by not 12 points -- but 70!

Abandoning the horse midstream
Of course, considering how well Davenport has done with its IBM pick so far, it's curious to see the analyst so eager to dismount today.

Why is this? One reason: Davenport believes that competition is starting to heat up for IBM, what with Dell (Nasdaq: DELL) moving aggressively to expand in the enterprise IT space, and Oracle working hard to promote paired sales of "Exadata and Exalogic hardware appliances." Davenport worries that "Oracle's customers could be attracted by the performance" of these appliances, cutting into IBM's market share. Meanwhile, the analyst fears that the weakness we've seen in U.S. government tech spending at Cisco (Nasdaq: CSCO) lately will begin to hurt IBM's business.

Foolish final thought
Whether or not you think there's merit to Davenport's musings on competitive threat, however, one fact is undeniable: At $175 a share, IBM is no longer as cheap as it once was. Today, IBM shares sell for nearly 15 times annual earnings, despite consensus estimates on Wall Street that the company is going to grow at only about 11% per year going forward.

As for me, when I look at IBM and see free cash flow backing up close to 97% of reported income, and IBM willing and able to pay a 1.7% dividend, I find it hard to call the stock truly expensive. Still, 15 times earnings for an 11% grower and 2% payer looks only fairly priced to me -- even when the stock in question is an industry goliath like IBM.

My advice: Listen to the voice of experience. Davenport was right about IBM before. When it tells you IBM's no longer a bargain, and you should wait for better prices, Davenport's right again today.

Fool contributor Rich Smith does not own (nor is he short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 573 out of more than 170,000 members.

The Motley Fool owns shares of Oracle, Cisco, and IBM and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Adobe and Cisco and creating a diagonal call position in Adobe Systems.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.