Get to Know a Guru

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." In our recurring column, "This Just In," we cover the most headline-worthy upgrades and downgrades, testing the analysts' logic and examining their records to help you decide whether they're worth listening to at all.

In "Get to Know a Guru," we go another route. Here, we use upgrade and downgrade news as a springboard to introduce you to some of the lesser-known names in analyst-land. Up this week: Davenport & Company.

Profiles in punditry
An unfamiliar name (to me, at least) popped up on MSN Money's tally of analyst downgrades yesterday, when Davenport downgraded the stock of ConAgra Foods (NYSE:CAG) from "buy" to "neutral." If you're wondering just who the heck Davenport is, you're not alone.

In a world of Johnny-come-lately investment advisors and fly-by-night hedge funds, Davenport is an isle of constancy. Founded as a Richmond, Va., insurance agency in 1861, these guys have been in the investing business for nearly a century and a half. Davenport bought its first seat on the NYSE in 1921, and exited the insurance biz shortly thereafter, selling out to Marsh & McLennan in 1924.

Get to know this guru
Today, Davenport boasts of being the largest independent stock shop in Virginia, with offices located throughout the Commonwealth, and stretching into North Carolina. Its analysts follow 11 separate industries, including:

• Business and professional services
• Financials
• Energy
• Health care and special situations
• Metals
• REITs
• Specialty finance
• Technology

Judging from the number of companies contained in its coverage list, however, its top three interests are consumer staples; capital goods and construction materials; and gaming, media, and entertainment.

Are these guys any good?
So much for the firm's biography. We really want to know about its resume. When Davenport speaks, should investors listen?

The answer here is the proverbial "definite maybe." On one hand, Davenport's advice is more often right than wrong. According to Motley Fool CAPS, the firm has a near-55% record for accuracy. But on the downside, Davenport's record compared to other investors' fails to impress. Its CAPS rating puts it in just the 59th percentile of our 37,000-plus rated players. Reviewing a few of its better picks, we find:

Unfortunately, Davenport also picked a few dogs:

Separating the analyst from the analyzed
Notwithstanding Davenport's middling CAPS record, I must say that I agree with its decision to downgrade ConAgra. I suspect that the analyst took advantage of a short-term scare (the news that Banquet-brand pot pies need to be cooked before eating -- um, duh!) to pull its endorsement of a pretty richly priced stock.

Prior to the downgrade, you see, ConAgra was selling for 16 times trailing earnings. That may not sound like much, but for a company that most analysts think will grow profits no faster than 9% per year over the next five years, it's certainly no bargain. When you also note that ConAgra has been running free cash flow-negative, to the tune of more than $280 million, over the past year, I see little reason to own these shares. While analysts rarely issue sell ratings, I find this particular rating appropriate.

Disagree? Feel free. Come on over to CAPS and tell me why.