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 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...
Very often in this column, I speak of "the best" in the expansive sense of -- "one of the better analysts on Wall Street." It's not often that I get to write about an upgrade from the absolute, undisputed, No. 1 "best" analyst on CAPS. As a matter of fact, I've only done it once before.

But today makes it twice.

The literal best
On Thursday, the top-rated professional analyst in all of CAPS came out with a buy rating on plastic-meister MasterCard (NYSE:MA). Why does Calyon Securities like the stock? Basically, because the market overreacted to MasterCard's Q2 earnings release.

Although the company beat earnings estimates by nearly 8% on Wednesday, that outperformance fell short of MasterCard's past "earnings beats." In the preceding three quarters, MasterCard had blown away estimates by margins of, respectively, 35%, 82%, and 33%. As Calyon put it: MasterCard "apparently 'didn't beat estimates enough'" this time around. The stock promptly sold off 11%, and another 5% yesterday. Yet Calyon argued that "MasterCard represents a good place to invest, as one can take advantage of the global move toward plastic, continued robust consumer spending, and completely avoid credit risk." Between the prospects and the new-and-improved price, Calyon upped its rating from a cautious "add" to an out-and-out "buy."

But does Calyon know what it's talking about? I mean, all the talking heads on CNBC warn that the economy is slowing down, that consumers are feeling pinched by rising gas prices and falling home equity. Maybe investors really should be taking some MasterCard profits and waiting to see if consumer spending holds up.

Let's go to the tape
To get a feel for whether we should follow Calyon's lead against the advice of the professional worrywarts, we turn once again to Motley Fool CAPS for a glimpse at this banker's record. There we find that in the process of claiming the top spot on our Wall Street's Best list, Calyon has racked up a record of being right on its calls 57.6% of the time, and earned an overall ranking of 98.75735, putting it within the top 23% of CAPS investors. Among its winning picks we find:

Of course, even the best investor in CAPS Land has bad days, as well as good. A few of Calyon's goofs include:

Like I said before, we poke a lot of fun at Wall Street analysts here at the Fool. And I could certainly stand here and mock Calyon for endorsing a stock with a 140.34 trailing P/E, projected by the consensus of all other analysts who follow it to grow at just 17% per year over the next five years. On its face, the P/E ratio seems absurd (at least, until you notice that on a cash profits basis, MasterCard is priced at only 32 times free cash flow.)

But I won't be mocking Calyon today. I'm just too much in awe of its record of consistent outperformance. As CAPS users have learned by now, a few bad days, or a few bad calls, can wreck a lucky player's record right quick -- and I've felt CAPS' lash myself more than once. So it's all the more impressive to see that Calyon isn't just the best Wall Street player today, but was also the best Wall Street player when last I checked two months ago. That's consistent outperformance.

If there's one professional investor you should listen to, I suggest you make it Calyon.

On July 25, Motley Fool Inside Value issued the second-ever installment of our new initiative to provide our members weekly, actionable commentary on current stock picks. In that update, we included important news for MasterCard investors.

Fool policy is to not discuss the contents of our update for 30 days, to give paying subscribers plenty of time to digest the news before it goes out to the general public. But if you're just dying to know what we think about MasterCard today and can't wait the full month, sign up for a free, 30-day trial to the service right now, and you'll get instant access to the update.

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. 3023 out of more than 60,000 raters.  MasterCard and Western Union are Motley Fool Inside Value recommendations. The Fool's disclosure policy is accepted everywhere.