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 …
Stocks rallied on the Nasdaq and NYSE this morning, but shareholders of at least one Wall Street stalwart missed out: American Express (NYSE:AXP). And the blame may rest squarely on the shoulders of another: JPMorgan Chase.

With the grace of a ballerina, a politician's aplomb, and all the tact of its very own CEO, JP Megabanker executed a perfect 180 this morning, turning its opinion of American Express on its head. Whereas JPMorgan was still urging investors to buy the shares as recently as Tuesday afternoon, by sunup Wednesday, the banker was shouting "sell, sell, sell!" (Or more precisely, "underweight, underweight, underweight!") Says JPMorgan: American Express will suffer so long as consumers cut spending and increase saving, as they wait until they see the economy improve.

Um, duh!
Pretty obvious, huh? Obvious enough that you may wonder why it took JPMorgan so long to realize that people without jobs, and incomes, don't have a lot of scratch to spread around. But truth be told, if you've been keeping track of this banker's record, you'd already know that JPMorgan isn't exactly the crispest bill in the cash register, according to CAPS.

Here at CAPS, where we have been watching JPMorgan closely for going on three years now, we've noticed that the banker consistently gets more than half its bets wrong. While JPMorgan does generally outperform the S&P 500 by a few fractions of a percent per pick, it peeks above the average in large part by standing on the backs of a few outsize winners:

Impressive performance? No doubt -- and the MasterCard pick seems especially relevant to today's downgrading of American Express. But remember that these are only three out of the more than 800 picks that JPMorgan has published over the past three years. At the same time that the banker boasts of its successes, let's not forget that it also recommended:

And when you consider how big a part of GM's business consists of financing auto sales, this makes for three big losers in the financials sphere -- which suggests JPMorgan may not be "all that" when it comes to picking winners in its own financial backyard.

Playing a hunch
Is there anything to JPMorgan's rating? Sure there is. Like I said, concluding that consumers will cut spending when they stop getting a paycheck is kind of a no-brainer. But the fact remains that even if its growth slows in the near term, American Express's stock price more than factors in this slowing, and offers intrepid investors a real chance to profit when the U.S. economy revives.

Priced at less than six times last year's earnings, American Express looks admirably undervalued relative to consensus expectations of 10% earnings growth per year over five years. Heck, even if you focus on the short term, the company's still selling for a bit more than nine times this year's smaller anticipated earnings -- not as much of a bargain, but still pretty darn cheap.

Either way you look at it, American Express seems priced to buy. So why's JPMorgan taking chips off the table today? My hunch is that the explanation's as simple as this: The banker just noticed that American Express shares have risen about 35% over the past few weeks and decided it's time to lock in its winnings. (If a few weeks from now, the stock falls back a bit, and JPMorgan jumps right back in with another 180-degree reversal and tells you it's time to buy, you'll know I was right.)

Meanwhile, the fact remains: American Express looks cheap regardless of what JPMorgan says.