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 worst ...
See if you can figure this one out, Fools. Two weeks ago, cratering earnings and bleak predictions of declining profits at Nabors Industries inspired Jesup & Lamont to downgrade the whole darn oil industry (more or less). Helmerich & Payne, Patterson-UTI, and Unit Corp. (NYSE:UNT) -- each got hit with the dread "sell" rating.

No longer. A series of "earnings beats" at shops like EXCO Resources, W&T Offshore  (NYSE:WTI), and, yes, Unit yesterday, has forced a drastic rethink among the stock jocks. Whereas two weeks ago, Jesup was certain Unit was a "sell," this morning the analyst pulled a complete 180 and upgraded the stock to "buy."

What's got this banker feeling so optimistic about Unit? Explains Jesup: "UNIT gives an investor both a drilling company and exposure to the commodity through its natural gas production." (Albeit, not as much exposure as a pure play like Chesapeake Energy (NYSE:CHK) or the ultimate gas blast, United States Natural Gas (NYSE:UNG).) Continues Jesup: "The company presently has $163.5 million in debt and a debt to equity ratio of 10%. ... Management is very strong."

After digesting Unit's results and fiddling a bit with its abacus, Jesup now predicts that Unit will earn $2.40 per share this year, $2.60 next year, and four whole bucks a share in 2011 -- giving this stock a very forward P/E ratio of less than 9.

But is Jesup right?

Let's go to the tape
We've recommended Unit ourselves at Motley Fool Stock Advisor. And Fools, there's nothing I'd like more than to tell you that Jesup is a super stock picker, an oil-patch master, a black-gold guru -- and right about Unit. But that just isn't the case.

To the contrary, three years of tracking this banker's performance on CAPS have me convinced that Jesup doesn't know a winning oil stock from, well, a hole in the ground. Its record in the industry is replete with such dry holes as:


J&L Says:

(out of 5):

J&L's Picks
Lagging S&P by:

Diamond Offshore (NYSE:DO)



6 points

Noble Corp. (NYSE:NE)



21 points

Transocean (NYSE:RIG)



31 points

It takes a certain level of talent to pick a trio of superb companies like these -- five-star stocks every one -- yet bungle the timing on upgrades so badly that investors lose money on each and every one. Yet Jesup has managed it. According to CAPS, this analyst inhabits the netherworld of investors ranked in the bottom quintile relative to their peers. It's quite literally one of the worst stock pickers on Wall Street.

So what are we to make of it when Jesup comes to us today and confidently tells us to buy a driller that's already lost $143 million over the last 12 months?

Bait first, then switch
By now, you're probably expecting me to tell you to ignore Jesup out of hand, right? To go right on selling Unit? Well, I'm not going to tell you that. Fact is, while I'm not at all impressed with Jesup's record, I am getting interested in Unit. Here's why:

Is Unit losing money as GAAP calculates such things? Darn tootin'. But look beyond reported earnings, and I think you'll see significant improvement in what Unit's doing with its free cash flow. You see, Unit significantly improved cash generation this year, uncorking a gusher $115.5 million in free cash flow so far this year -- more than seven times what it produced in the first half of last year. That's almost enough to offset the $134 million it spent in free cash flow in last year's second half, and return this company to breakeven over the past year.

What's more, management confirmed yesterday that despite accelerating "drilling activity for the second half of the year [we] have increased our estimated 2009 capital expenditures for this segment from $200 million to $220 million." Unit is confident that its capital expenditures will remain "within anticipated cash flow." Translation: The company's going to zoom right past free cash flow-breakeven, and generate honest-to-goodness positive free cash flow this year.

Foolish takeaway
Granted, if the recession continues to bite, and oil and gas prices fall, all bets are off. Granted, too, there's a big difference between being merely free cash flow-positive, and generating enough of it to justify the stock price. It's going to take some time to see how well Unit winds up doing with these two issues. But to my mind, that justifies at least holding the stock, and may be enough to justify buying.

W&T Offshore is a Motley Fool Hidden Gems pick. Unit is a Stock Advisor recommendation. Chesapeake Energy is an Inside Value recommendation. The Fool owns shares of Chesapeake.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 827 out of more than 135,000 members. The Fool's disclosure policy has been ready for its close-up since 8 a.m.