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 track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

What a concept!
Twenty years after Peter Lynch's One Up On Wall Street first hit the street, you'd think "buying what you know" would have become standard practice in investing circles by now -- but some investors, it seems, are just catching on. Case in point: This morning, banker Collins Stewart finally got around to rating its very own sector -- banking. Now that Collins has discovered the concept, what does it think about the business that it knows best?

Initiating coverage on a dozen-and-a-half of its peers, Collins Stewart finds precious little to like about its industry. Only four of the banks Collins reviewed came away with buy ratings:

  • Bank of America (NYSE:BAC)
  • Fifth Third Bancorp (NASDAQ:FITB)
  • JPMorgan (NYSE:JPM)
  • SunTrust Banks (NYSE:STI)

A dozen more got a shrug and a "hold" rating -- primarily regional banks, but also including such marquee names as:

  • Citigroup
  • US Bancorp (NYSE:USB)
  • Wells Fargo (NYSE:WFC)

About the only good news for investors is that Collins considers only a couple of banks so bad that it just can't recommend anything better than ditching 'em. The "winners" in this category: M&T Bank and Zions Bancorp.

What's got Collins feeling so apathetic about most banking stocks? Two words: Credit risk. Predicting that we will see credit losses continue to rise into mid-2010, with charges on bad loans remaining high well into 2011, Collins thinks we're in for a "long and slow" recovery in the banking sector (and who would know that better than a banker?)

The banks in question, having an even closer-up view of their particular difficulties than Collins gets by peering in from outside, are likely to hang onto their cash to offset loan losses -- rather than putting the cash to work making new, profitable loans. Between the limited potential for profit growth, therefore, and the fact that banking stocks have already run up so far, so fast, Collins sees the likelihood of beaucoup price spikes in most stocks as ... well, unlikely.

Let's go to the tape
Now, this is the point in the column where I would ordinarily tell you how well Collins has performed on past picks in the banking sector. Problem is, it hasn't (made picks in the sector, that is). And so it has no record to examine.

All we can really say at this point is that Collins seems a middling analyst overall. According to CAPS, the banker's affirmative recommendations (i.e., "buy it" or "sell it") are outperforming the market by about 6.5 percentage points per pick. That's good, which would argue in favor of following Collins' advice on the six love-hate relationships named above -- except for the fact that Collins is only actually right on its predictions about 47% of the time.

Foolish takeaway
My advice, therefore, would be that if you want to follow Collins' advice, do so in bulk. Spread out your bets over several of its banking picks, and the odds are that you will come out ahead.

Bet small, lose small -- it's good advice for risk-averse bankers... and for banking investors in this overheated market.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating about stuff he does understand under the handle TMFDitty, where he's currently ranked No. 785 out of more than 140,000 members. The Motley Fool has a disclosure policy.