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 worst ...
Idling in front of the fire this morning, JPMorgan Securities looked up from the morning paper and opined: With dominant market share in the U.S. and potentially a 25% "cash return on market cap by 2010," Altria (NYSE:MO) looks like a buy.

Asked about the potential for state and federal excise tax hikes to curb demand, JPMorgan conceded that yes, that's likely, and that Philip Morris International (NYSE:PM) is in fact his favorite tobacco stock. But Altria's still looking pretty good, and a whole lot better than Lorillard (NYSE:LO) or Reynolds American (NYSE:RAI).

Let's go to the tape
Why should we care what JPMorgan thinks? After all, according to CAPS, the analyst group gets more picks wrong than right, underperforms the S&P 500 by more than 1% per pick on average, and has stumbled badly on such recent predictions as:


JP Said:

CAPS Says:

JP's Pick Lagging S&P by:

Suncor Energy (NYSE:SU)



32 points

Transocean (NYSE:RIG)



30 points

China Mobile  (NYSE:CHL)



22 points

Hardly an inspiring record. But will today's smoky recommendations return JPMorgan to its former glory? Or is this banker still fumbling around in the haze?

I've cut through the clouds to find a few numbers that may be instructive:


Trailing P/E

5-Year Consensus Growth Estimates

Net profit, ttm

Free cash flow , ttm




$6.4 billion*

$4.6 billion

Philip Morris Int'l**



$7.0 billion

$6.3 billion




$0.84 billion

$0.85 billion

Reynolds American



$1.4 billion

$0.73 billion

Source: Yahoo! Finance and Capital IQ, a division of Standard & Poor's. ttm = trailing 12 months.
* On GAAP basis, including discontinued operations in the March '08 quarter from the Philip Morris spinoff.
** As if it were a stand-alone company for the entire ttm period.

Let's get the caveat out of the way first: With the exception of least-profitable Lorillard, each of the major tobacco makers generated significantly less free cash flow (FCF) for the past year than it reported as net income under GAAP. That said, both Altria and Philip Morris boast attractive P/E-to-growth (PEG) ratios. And between these two, Altria has by far the better enterprise value-to-FCF ratio (thanks to a much lighter debt load).

Foolish takeaway
Its reputation of underperformance notwithstanding, I actually agree with JPMorgan today. Selling for an EV/FCF ratio of less than 7, and poised for estimated 10% long-term growth, Altria does look attractively priced -- even moreso than JPMorgan fave Philip Morris. You also have to love the 8.3% dividend yield, which pays out better than anyone but Reynolds American.

That said, JPMorgan may also have a point in maintaining its preference for the international side of Philip Morris. Unlike Altria, Philip Morris avoids legislative risk in the U.S., not to mention the risk of depressed sales as the tax man cometh. Uncle Sam will likely be eager for as much tobacco loot as he can get, in hopes of shoring up our trillion-dollar deficit.

In a market like this one, there's something to be said for risk mitigation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.