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

And speaking of the best ...
What do you do when one of the best analysts on the planet (literally) suddenly changes its mind and tells you to buy one of the biggest names on the stock market? Personally, I listen up. And from what I hear, the super stockpickers at Barclays Capital just turned bullish on Ford (NYSE: F).

Arguing that Ford will continue gaining market share despite the impending General Motors IPO, and maintain "strong" profit margins even as it gains ground on GM, Barclays says it sees "compelling upside value" in Ford shares today. Even if the auto market fails to rev up appreciably in the near future, Barclays believes Ford will outperform the stock market through a trifecta of terrific advantages, namely:

• "Unmatched pricing leverage"
• "Drastically reduced costs"
• "A strong vehicle lineup"

But is Barclays's latest recommendation brilliant, or completely batty?

Let's go to the tape
I'll say this straight out: You'd have to search long and hard to find a better stock analyst than Barclays. This banker only began publishing its ratings for the world to see a couple years ago, but over that time it's consistently maintained a record of 55% accuracy on its picks (and if you think that's easy to do, trust me. It's not.)

Better still are the margins of victory Barclays has racked up on its recommendations. Your average Barclays pick beats the S&P 500's returns by a stunning 10.8 percentage points. And if you fear a banker like Barclays might perform poorly in the world of grease monkeys and gearheads, think again:

Since its first venture into the auto world back in December 2008 (a recommendation of engine components maker BorgWarner that returned a clean double), Barclays has claimed -- and held onto -- a record of 100% accuracy on its Auto Components picks.

A perfect record? Wow.
Wow indeed. That said, a perfect record isn't always all it's cracked up to be. Switch your focus from auto parts to auto makers, and Barclays's record remains perfect -- perfectly wrong. Its advice to buy Daimler (NYSE: DAI) earlier this year isn't working out at all well for investors, who are trailing the market by 32 points on the pick. Nor did Barclays fare better when it told investors to buy a certain carmaker last year, and wound up losing nearly 280 percentage points to the market on that pick. The carmaker in question being, of course Ford itself.

Fortunately, I don't think beating the market will prove to be a problem for Barclays this time around. This time, I think Barclays is going to beat the S&P 500 with a stick.

Valuation matters
Why? Not just for the reasons Barclays cites: leverage, cost reductions, lineup and what-not -- but because the more I look at Ford today, the more I like the price.

Consider: At a P/E of less than 8, and growth projections verging on 17% a year, Ford stock already looks like a no-brainer. But the situation is actually even better than that. Ford's $8.6 billion in annual free cash flow outstrips the $6.6 billion it reported "earning" over the past year by a good 30%. While $8.6 billion may lag Toyota's (NYSE: TM) cash generation by a sizeable margin, it crushes what Honda or Daimler are producing -- and don't even get me started on upstart Tesla (Nasdaq: TSLA). It's enough money to give Ford a valuation even lower than its P/E suggests -- just 5 times free cash flow.

Foolish takeaway
Quibblers may point out that Ford carries a big debt load, a factor that doesn't enter into P/E or P/FCF ratios -- and I'll concede the point. But even factoring in both debt and free cash flow to run the most conservative valuation metric I know, enterprise value-to-free cash flow, I still see Ford's core business trading for less than 15 times its rate of cash generation. A number, I should point out, that is still below the company's growth rate.

Conclusion: If you're looking for a value stock with real growth potential, Ford's tough to beat.