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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll 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'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst ...
Just this morning, an upgrade from Thomas Weisel gave a lift to shares of tax guru H&R Block (NYSE:HRB). In recommending that investors buy Block now, Weisel emphasized the company's core tax-prep business over its troubled -- and soon to be sold -- mortgage-lending subsidiary, Option One. Taking an uncharacteristically (for Wall Street analysts) long view, Weisel argues that once Option One is removed from the picture, Block can finally begin growing its profits again.

I'm sure that would be a relief for Block investors. After all, the company's results have shown year-over-year declines in every quarter since November 2005 -- it's high time for a turnaround. But what are the chances that Weisel has "called the bottom" here -- that this time, the recovery is for real? For clues to Weisel's prescience, we turn to Motley Fool CAPS to tell us a bit about the firm's record.

The news, it turns out, is not good. With a combined CAPS rating of just 22.30, Weisel ranks in the bottom quartile of all CAPS participants, including lay and professional pickers, as well as actual players and those, such as Weisel, whose picks we're tracking. It places 19,011 out of 24,488 in our CAPS marathon of stock-picking. But even so, the company sports a respectable accuracy score of nearly 53%, showing that its picks are more often right than wrong, if just barely. Reviewing a few of its more successful recommendations, we find:

With picks like that, you'd think Weisel would score better on CAPS. Between its low score and relatively respectable accuracy rating, there's really only one way Weisel can be rated this low: It must have chosen some real stinkers and panned some great businesses. How true:

On the other hand, you have to hand it to Weisel -- these guys made the right call on Block, back in the day. Initiating coverage in April 2004 with a "neutral" rating, Weisel encouraged investors to sit on their hands rather than buy shares of H&R Block. Turns out, this was the right decision (although advising investors to sell the shares would have been even better), because it kept investors out of a stock that proceeded to lose 9% of its value as the S&P 500 raced upwards 21 points.

My advice? Weisel may be right more often than it's wrong, but when it does make a mistake, it's often a doozy. I'd sit this one out at least until it's known how much Block can get when it sells Option One. The company reportedly carries a $1.3 billion price tag, but market pundits have roundly panned that figure -- I've seen numbers as low as $600 million bandied about as more likely sales prices. If the talking heads are right, and Option One fetches just half of what Block wants for it, then this stock could take a hit, upgrade or no.

Hey, but what do I know? I'm not the top CAPS scorer on H&R Block. To find out who is, and learn what this mystery investor thinks about Block at today's price, just click here.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 28 out of more than 24,000 raters. Under Armour is a Motley Fool Rule Breakers pick. The Fool has a disclosure policy.