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 best ...
It's probably too early to call Oscar Gruss & Son "the best" of anything just yet. Not that this banker, based in New York City and Tel Aviv, Israel, is new. It's celebrating its 90th year in business, in fact. But its ratings have been showing up on CAPS for less than a month.

Still, when Motley Fool Global Gains recommendation Fundtech (NASDAQ:FNDT) got hit with a downgrade on Friday, it was Oscar doing the grouching. Despite this banker's limited CAPS record, I thought Fundtech shareholders might want to know a bit about its record -- and its reasons for knocking Fundtech.

Let's go to the tape
CAPS requires a minimum of seven recommendations before any player can earn a score. With only five recs under its belt, Oscar isn't quite there yet, but it's getting close:
 

Only about one analyst in five manages to consistently score 60% or better accuracy on its picks that CAPS tracks. So beating the market on three out of five picks is, literally and in every other sense, better than half-bad. If it's still achieving this level of performance by the time it reaches seven picks (and perhaps beyond), Oscar Gruss could well become one of the "best" Wall Street analysts we track.

But will decisions like Friday's move to downgrade Fundtech help or hinder Oscar in its quest to be the best?

Funds in doubt at Fundtech
Remaining generally bullish on the banking-software maker, Oscar says Fundtech "continues to deliver" despite "a challenging period within the financial sector as well as currency headwinds." Still, concerns over a "slowdown in bookings in the U.S." and delays in signing an expanded contract with Barclays (NYSE:BCS) continue to make the analyst worry.

I have no reason to suspect troubles with the Barclays deal, but I agree with Oscar's cautious stance. Although Fundtech is not quite as expensive as its price-to-earnings ratio of 35 might suggest (the price-to-free cash flow ratio is a more reasonable 20), it doesn't have much of a margin of safety at all. Any risk to the projected 21% growth rate -- and the Barclays contract certainly qualifies -- should be viewed askance.

Were I in Oscar's shoes, I think I, too, would call this one a hold.