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 ...
Just last week, we regaled you with the story of how A.G. Edwards had upped its rating on Motley Fool Inside Value recommendation MasterCard to "buy" but kept mum on its reasons for the upgrade. Well, they're at it again, folks. Just this morning, the folks at A.G. Edwards came out with an upgrade on another Inside Value pick: Anheuser-Busch (NYSE:BUD). Once again, the recommendation is to buy the stock. Once again, the explanation for why went missing. All we've got is a press release from Briefing.com informing us of the fact of the upgrade, with no mention of its basis.

Lacking context for the upgrade, it's hard for an investor to know how to react to the analyst's "buy" rating -- but that's where we come in. At Motley Fool CAPS, we aim to hold Wall Street responsible for its past picks and also give you the necessary context in which to view current ratings. All other things remaining equal, you'll probably want to give upgrades more weight when they come from bankers with good records at picking stocks.

Let's go to the tape
Fortunately, A.G. Edwards is indeed one of these "good bankers," and it's only getting better. In fact, just this morning, A.G. Edwards broke into the top 10% of CAPS players with a rating of 91.42, enough to earn it "All-Star" status. And in contrast to many investment bankers, A.G. Edwards gets more of its calls right than wrong. Its accuracy is now up to about 52%. Reviewing the firm's record as we've tracked it on CAPS, we find it's done pretty well with these calls:

Meanwhile, A.G. Edwards has been less fortunate with bullish pronouncements such as these:

A.G. Edwards' record looks good -- good enough that I suspect many investors would be comfortable buying some BUD based on its say-so alone. But here at the Fool, we'd prefer to put a little more meat on the story than just what A.G. Edwards has given us. So let's see what Inside Value deep-value-seeker Philip Durell has to say about his own recommendation of Anheuser-Busch.

A Fool speaks
Philip's most recent comments are still under lock and key away from the general public. As a favor to our paying customers, we don't publish our advisors' thoughts until our members have had at least 30 days to chew on them. And believe it or not, Philip and his team are so diligent about keeping our subscribers informed on their stocks that their last two updates remain subject to this "quiet period." (But if you'll do us the courtesy of taking a free trial of the service, we'll let you see their most recent thoughts right now. We'll get you started.)

That said, I can delve into their thoughts circa February 2007. In that update, Philip's words were less than inspiring -- but his spirit was optimistic. "The company should resume low-single-digit volume increases and moderate price hikes," he began. Doesn't sound exciting yet, does it? But wait. There's more.

These are the two factors that make the Budweiser machine tick: Mild volume growth with rising prices can translate to earnings increases of 8% to 12%. ... [Now that] pricing wars have abated ... the company has resumed profitable growth. Anheuser-Busch has smartly positioned itself, adding new brands to its distribution portfolio -- such as its recent agreement with InBev, which brought the rights to distribute Stella Artois, Bass, and Beck's, brands that won't cannibalize the core user base.

Now, I can't say for sure that A.G. Edwards' thinking ran along the same lines when it made its upgrade. But the logic is sound, and I think it supports A.G. Edwards' endorsement regardless of how the upgrade actually came about.

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. 177 out of more than 60,000 players. The Fool has a disclosure policy.