[Nathans_Dad]

Upgrades and downgrades are simply changes in the sentiment towards the stock that a specific analyst has. For example, if Lehman Brothers upgrades to a buy from a hold, that means the analyst is more bullish on the stock. There are various terms that different investment houses use, buy/hold/sell, outperform/market perform/underperform, overweight/hold/underweight, etc.

Whether or not you should pay attention to upgrades or downgrades is up for debate a little. Certainly if all the analysts are negative on a stock you should think twice about buying and try and figure out why they might be so negative. But remember that analysts are people too and that rating is just based on what that analyst thinks.

There are some folks out there who think it is all a racket. Example, Analyst downgrades Stock XYZ, stock drops. Analyst's company or other companies buy the stock on the drop. Analyst then upgrades the stock later on, stock rises, analyst's company sells stock. This is illegal, but sometimes proving it is tough.

I have personally noticed that upgrades and downgrades are often times after the fact and sometimes represent good buying opportunities. Analysts are like sheep, they all follow the herd. If nothing about the company has changed then a downgrade might be a good time to buy.

Caveat emptor.