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 worst and sorriest, too.

And speaking of the best...
On Tuesday, shares of OLED (that's "organic light-emitting diode" to the uninitiated) panel maker Universal Display (NASDAQ:PANL) exploded 10% higher on the back of an upgrade to "buy" from Needham & Company. According to the analyst, use of OLED technology is becoming a "viable alternative" to the liquid crystal technology that currently dominates in smaller flat-screen displays. As one of the leaders in the new industry, Universal Display is "poised for rapid growth over the next several years."

Needham also introduces us to a newish tech term -- "AMOLED," or active-matrix OLED, which Universal Display is working on. This refers to a kind of low-energy-use form of the technology that would be especially attractive to the makers of battery operated electronic devices -- PDAs, cellphones, portable gaming consoles, and the like.

Needham capped its upgrade on a cautious note, however, warning that its upgrade might be a bit on the early side. We've all seen what happens when a new technology isn't quite ready for prime time and has to be held up while the kinks get worked out (for example, Sony Playstation 3). Investors seem not to have caught that last bit, though, judging from the buying frenzy we saw yesterday. So the question we're now faced with is this: Just how good is Needham at predicting the future, and how close to "right" might its timing be on yesterday's buy rating?

Let's go to the tape
For the answer, we turn once again to Motley Fool CAPS for a glimpse at Needham's record. What we see there isn't particularly encouraging. The analyst sports just a 72.07 CAPS rating and sub-50% accuracy. Its top three active outperform picks on CAPS are:

On the flip side, Needham has also made some pretty bad bets on:

Foolish takeaway
Needham's record for accurate calls (49%) may not inspire a lot of confidence, but just look at those top three picks. Wow! That gives you just a taste of what can happen when Needham does call one right. Or in this case, three right.

Needham seems pretty sure about its own rightness this time around, even if it's a bit iffy on the timing. In that regard, though, I'd point out that in our own November update on Motley Fool Rule Breakers picks (of which Universal Display is one), the Rule Breakers team calculated that with $47.1 million in its kitty, Universal Display had "more than four years of operating cash at the current burn rate -- long enough to see the uptake of new commercial products incorporating OLED materials."

Now, add to that the $40.6 million the firm raised in its Q1 secondary stock offering, and I'd venture to say that Needham's timing is irrelevant here. As long as the technology itself gains wide commercial acceptance, this company will be around to enjoy the benefits -- as will its shareholders.

But don't just take my word for it, or the Rule Breakers', or Needham's. Check out what the current CAPS score leader has to say about Universal Display. You can learn the identity of this mystery stock picker, and find out what he (or is it a she?) thinks about the stock, when you visit the company's CAPS page.

And remember: If you're on the hunt for breakout stock plays the likes of Universal Display (which is up 86% since Rule Breakers recommended it), we've got a ready-made list for you in the Rule Breakers portfolio. Free viewings available upon request.

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 No. 2441 out of more than 30,000 raters.