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 "best" ...
... it's getting awfully hard to find any professional investors worthy of the moniker these days. The last few months of market mayhem have laid waste the reputations of such leading lights as JPMorgan and Citigroup. Lesser-known players like Collins Stewart have been spared some of the pain, but to be honest, even this shop's 61.78 player rating fails to impress.

And here's the bad news: Collins' recommendation that investors buy Qualcomm (NASDAQ:QCOM) yesterday could well be the straw that brings Collins' camel down to JPMorgan and Citi's level. Before I tell you why, though, let's take a quick look at Collins' record.

Let's go to the tape
Despite a portfolio of recommendations that boasts several stocks verging on two-bagger-hood ...

Company

Collins Said:

CAPS Says:

Collins' Pick Beating S&P by:

Force Protection (NASDAQ:FRPT)

Outperform

***

119 points

Sohu.com (NASDAQ:SOHU)

Outperform

****

121 points

Shanda Interactive

(NASDAQ:SNDA)

Outperform

****

124 points

... Collins is still guessing wrong on about 58% of its recommendations. And while its losers tend to cost it less than those winners above, like Custer at Little Big Horn, Collins' winners are badly outnumbered. Simply put, the losers are steadily whittling away at Collins' gainers:

Company

Collins Said:

CAPS Says:

Collins' Pick Lagging S&P by:

Intel

Outperform

****

4 points

Riverbed Tech (NASDAQ:RVBD)

Outperform

***

29 points

Advanced Micro Devices

(NYSE:AMD)

Outperform

**

30 points

Personally, I don't expect that Collins' recommendation of Qualcomm will do anything to reverse this trend. Now, as promised, here's why.

Buy the reasoning?
Let's start with the analyst's halting, half-hearted recommendation of the stock. Collins starts off on a defensive note, conceding at the outset that Qualcomm carries a "25% valuation premium to the median group multiple" (that is, it's more expensive than most). After arguing that the company's profitability and growth prospects justify the premium, Collins then segues right in to highlighting multiple risks to its thesis, in particular, "overall handset growth rates," "adoption of WCDMA technologies," and "the continuation of Qualcomm's licensing revenue stream." None of which sounds particularly encouraging to this Fool.

No. Buy the numbers
Now, expanding on that "median group multiple." I presume what Collins refers to here is the fact that Qualcomm sells for a P/E of more than 18, versus industry multiples that average closer to 12 and include Texas Instruments' (NYSE:TXN) mere eight.

Maybe Collins thinks that Qualcomm's profits and growth prospects justify the stock selling for more than twice Texas Instruments' (TI's) valuation. I, for one, do not. Although Qualcomm is a more profitable shop than TI, and faster growing (according to analysts, Qualcomm is likely to grow earnings at nearly 13% per year over the next five years, versus less than 9% for TI), TI looks like the better buy to me, for two reasons:

  • First, the venerable PEG ratio on Qualcomm works out to roughly 1.5, versus less than 1.0 for TI. While not dispositive, this "first cut" at an overvalued/undervalued call suggests to me that TI is the more likely bargain here.
  • More important to me than the PEG, though, and the GAAP earnings on which it depends, is the amount of actual free cash flow a company generates. Here we find TI again in the lead. Whereas Qualcomm generates significantly less free cash flow than it reports as net earnings, TI does the opposite. Valued on their respective free cash flows, Qualcomm actually trades for something closer to a multiple of 27 times -- far in excess of what the growth rate justifies -- while TI is selling for barely seven times its annual cash profit.

Foolish takeaway
To me, the math here speaks clear: Texas Instruments looks like a steal of a deal. Qualcomm doesn't. Matter of fact, after a near-20% run-up from its lows on Dec. 1, the stock actually looks quite pricey. Personally, I wouldn't touch it.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool's own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below.

Sohu and Shanda are Motley Fool Rule Breakers selections. Intel is a pick of Inside Value, and the Fool owns both shares and covered calls.

Fool contributor Rich Smith owns shares of Force Protection. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 1,058 out of more than 125,000 members. The Fool has a disclosure policy.