This Just In: Upgrade or Downgrade

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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.

And speaking of the best ...
2005. A year of rocketing energy prices, and heated interest in Canadian oil sands miners like Petro-Canada (NYSE: PCZ) and Suncor Energy (NYSE: SU). It seems so long ago, but this morning, Wall Street banker KeyBanc Capital Markets took us back to the future with a dual endorsement of one of the top "picks 'n' shovels" plays that had investors dreaming of sticky black gold just a few short years ago.

Peering into its crystal ball and spying there the future of commodities demand, KeyBanc announced that it sees two possible futures for the global economy: "increasing stability and demand," or else "inflation-driven increases in commodity prices." KeyBanc premises its prognostication on its belief that "evidence exists to suggest a gradually improving outlook, as the negative rate-of-change in the economy appears to be decelerating."

Either way, KeyBanc thinks mining equipment makers Joy Global (Nasdaq: JOYG) and Bucyrus (Nasdaq: BUCY) win.

Let's go to the tape
But just how good is KeyBanc's record at picking winners in this sub-stratum of the equities markets? As we can see below, the record is mixed ... 

Stock	KeyBanc says:	CAPS says:	KeyBanc's Pick Beating (Lagging) S&P By:
Range Resources (NYSE: RRC)	Outperform	***	98 points
Vulcan Materials  (NYSE: VMC)	Outperform	***	(20 points)
Terex Corp (NYSE: TEX)	Outperform	****	(39 points)

 ... and the banker's performance on Joy and Bucyrus rival Terex in particular raises doubts as to its investing acumen. That said, I can't help but notice that KeyBanc did make a timely exit from both Joy and Bucyrus after recommending them last time around. Result for investors who heeded KeyBanc's advice: 19 points of market outperformance on Joy, and 40 points on Bucyrus.

Quick thinking like this has helped KeyBanc build up a record of 53% accuracy on recommendations tracked by CAPS, beating the S&P 500's returns by better than 4.5 percentage points-per-pick in the process.

Heads Bucyrus wins; tails Joy Global doesn't lose
Now let's go back to KeyBanc's key arguments: 

• "negative rate-of-change in the economy appears to be decelerating"
• leading to "increasing stability and demand"
• or else "inflation-driven increases in commodity prices."

Seems to me, this is not so much an up/down prediction as it is a belief that things will go up, and the only question is how fast. If the economy stabilizes, demand for natural resources commodities will likewise stabilize. If the economy recovers, on the other hand, commodities prices could go up -- and as prices increase, so too will demand for Joy's and Bucyrus's mining apparatus, which helps to extract the stuff.

Now here's the best part: If KeyBanc is right, both these stocks would appear to be the "buys" it says they are. But if KeyBanc is off a bit on timing the economic recovery ... I believe these stocks are still worth owning.

Consider: Right now, Joy Global is selling for a little less than a 9 P/E, while Wall Street as a group expects the firm to grow its "E" at 8% per year over the next five. Combine that with a healthy 2.4% dividend payout for your patience, and even if KeyBanc is wrong on the exact date of the recovery, long-term this stock looks, at worst, fairly priced. Bucyrus's numbers look similar. Here we're looking at less than an 8 P/E, with earnings growth projected at 9.5%. The dividend, however, isn't as rich.

Foolish takeaway
If forced to choose between 'em, my preference is for Joy Global. In contrast to Bucyrus, Joy Global continues to pump out free cash, and boasts free cash flow within a whisker of its reported GAAP earnings over the past four quarters. That, plus the dividend, plus the reasonable P/E, all make it my favored pick in the mining equipment sector.