This Just In: Upgrades & 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 tell you what the analysts said, and stop there. No, we're here to hold Wall Street to account. We're going to tell you what the analysts said ... and then show you whether they know what they're talking about. Helping us in this endeavor will be 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...
Early yesterday, hedge-fund-in-drag Goldman Sachs wilted the stock of 1-800-Flowers.com (NASDAQ:FLWS) when it downgraded the teleflorist from "neutral" to "sell." Said Goldman: "Calendar year 2008 to 2011 revenue growth above 5% is unlikely without greater-than-expected levels of spending, which would put our 13% profit growth estimate ... at risk." Worse, after growing like a weed (pardon the pun) for the past six months, 1-800-Flowers made the cardinal sin of exceeding Goldman's $6.50 year-end price target -- almost 11 months ahead of schedule.

According to Goldman, 1-800-Flowers is benefiting from "an overly optimistic outlook for Valentine's Day, Easter, and Mother's Day." Personally, I think it's also benefiting from investors' failure to notice that the firm hasn't generated a cent of free cash flow in the last two years -- and yes, I've rated 1-800-Flowers' stock an "underperformer" on CAPS.

But is Goldman right to be nipping investors' enthusiasm in the bud? For that matter, am I? Before deciding whether to heed an analyst's call, it's worth taking a few minutes to examine its record. Past performance may be no guarantee of future results, but it's the best guide you've got. So let's take a few moments to examine Goldman's past "underperform" predictions -- the ones that worked, and the ones that didn't:

Though it's a fine investor when playing with its own money, I think Goldman's had trouble naming dogs over the past few months. Its less-than-impressive record with underperform calls has done a lot of damage to the firm's CAPS rating. At just 87.59, Goldman not only fails to make the top 10% of Wall Street players. It's not even in the top 10% of CAPS players overall (including both lay and professional players). Much as I'd like to say "Goldman's clearly right, and 1-800-Flowers.com will underperform the market" -- especially since I've made the same call myself -- Goldman's recent performance argues to the contrary.

Perversely, though, that may be good news for CAPS players. Wouldn't you like to be able to say you bet against Goldman Sachs, called their bluff, and won? On CAPS, you can. Log on to the site, rate 1-800-Flowers.com "outperform," and take your chance to beat the hottest bunch of money managers on the Street. Or don't. If you agree with Goldman, and me, that these flowers cost just too darn much, join us and post an "underperform" rating on the stock. Whichever way you go, if you're right, your victory will be posted up there for all the world to see.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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 31 out of more than 22,000 raters. MasterCard is a Motley Fool Inside Value choice. The Fool has a disclosure policy.