This Just In: Upgrades and Downgrades

Here 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 just 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 not only for rating stocks but also for rating the analysts who rate stocks. 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 ...
Yesterday, analyst shop Matrix Research downgraded the stock of Louisiana-Pacific (NYSE:LPX) from buy to strong sell. Yes, you read that right. On Tuesday evening, Matrix thought you should own Louisiana-Pacific. By Wednesday morning, the analyst thought this the stupidest investment idea in the world. What a difference a day makes.

Not that Mr. Market cared. Analyst downgrades are usually followed by the slighted stock sliding in price -- but not yesterday. Instead, L-P ignored the slight and meekly followed the S&P 500 higher.

Why the stock didn't "play by the rules," I can't say. Perhaps it's related to the nature of the analyst, who rarely gives the basis for ratings, leaving investors guessing as to whether there's any basis at all. As CAPS All-Star mrchw has observed about the company (over on the Fool's Liquid Lounge discussion board), "Matrix is a total black box company. They run the financials using an EVA approach and then rank every company they cover based on this. The top 20% get strong buy, the next 20% get buy, the next 20% hold, the next 20% sell, and the bottom 20% strong sell."

That said, as professional money manager and longtime Fool theGreenMartian has observed: "[Matrix has] a distressing habit of being absolutely rational with their upgrades & downgrades... The last thing we need is a research shop worth listening to..."

Let's go to the tape
While Matrix has slid a bit in the CAPS rankings since the last time we checked in, it's still by and large a "research shop worth listening to." Motley Fool CAPS gives Matrix an 84.25 rating, earned primarily by dint of being very right on those occasions when it's right at all. Unfortunately, those occasions are just barely more frequent than a flipped coin coming up heads. Matrix's accuracy rating hovers around 50/50.

Its top three picks on the right side of that equation are currently:

On the flip side, Matrix blundered badly with:

As I've mentioned previously, and as reflected above, Matrix does a pretty good job of picking winners. Eight of its top 10 best scores originated with savvy buy ratings. In contrast, Matrix's record on "underperform" calls makes me a bit uncomfortable. Seven of the firm's top 10 worst scores can be traced back to blown underperform ratings.

On the one hand, this suggests that L-P investors might want to think twice before acting on a Matrix sell rating. But Matrix's disappointing record on underperform calls notwithstanding, I do see the firm's point here. With its triple-digit trailing P/E, net losses expected both this year and next, and $225 million in negative free cash flow, it's no surprise to me that Matrix now considers L-P a loser. The only mystery remaining: Why did Matrix ever endorse this company in the first place?

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Fool contributor Rich Smith does not own shares of any company named above. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 660 out of more than 30,000 rated players. Dawson Geophysical is a Motley Fool Hidden Gems choice. The Fool has a disclosure policy.