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 ...
Forget about "peak oil." This week is all about "nadir oil companies" -- and which of them you should buy. On Tuesday, investment banker and all-around CAPS All-Star BMO Capital Markets initiated coverage on a raft of oil drillers (some of which actually do lease oil-drilling rafts).

  • "Market perform" ratings (read: "neutral") were handed out to Cameron, Diamond Offshore (NYSE:DO), ENSCO, FMC, and Rowan Cos.
  • While BMO rated National Oilwell Varco (NYSE:NOV), Noble Corp. (NYSE:NE), Pride International, and Transocean (NYSE:RIG) "outperform" (i.e. "buy").
  • And the booby prize went to Hercules Offshore -- the sole "sell" on the list.

Why does BMO love Transocean? Why does it hate Hercules, and why does Rowan merit only a shrug?

Excellent questions -- but I don't know the answers. You see, while reports the fact that BMO has initiated coverage on these 10 companies, neither Briefing, nor Streetinsider, nor ... well, anybody, seems to know why BMO rated the stocks as it did. Not a single major media outlet has any details on the initiations, and BMO ain't tellin'.

Speak up, BMO!
There are few situations more frustrating to the individual investor than the one we face today. BMO likes some of these companies and pans or ignores others, yet won't tell us why either way. But while we're unable to confirm what BMO thinks, here at CAPS we can at least clue you in to how well it thinks.

Let's go to the tape
Which is to say -- not well. Or at least not when digging for black gold. While BMO sports a decent record overall, getting most of its recommendations right and outperforming more than 80% of the investors we track on CAPS, its record in the oil patch to-date is not really one to inspire confidence:


BMO Says:

CAPS Says:

BMO's Picks Beating (Lagging) S&P by:




(17 points)

Ultra Petroleum



(19 points)

Valero (NYSE:VLO)



11 points (two picks)

Marathon Oil (NYSE:MRO)



4 points

That's just a sampling of the 56 separate Oil, Gas and Consumable Fuels stock ratings that BMO has handed out over the past three years. But you get the gist -- on average, this analyst gets only about 43% of its recommendations right in this sector.

That said ...
Infallible BMO may not be, but there's at least one stock on this week's buy list that I happen to think BMO's right about: National Oilwell Varco. Let's see how it stacks up against the competition on BMO's buy list:




Future 5-Year Growth





National Oilwell






661 (!)






Now I admit that at first glance, National Oilwell may not be the obvious choice. It's got the highest P/E ratio of the four stocks that BMO recommends buying. But in almost every other respect, it trumps the competition handily. National Oilwell boasts:

  • The highest estimated growth rate.
  • The second-highest amount of free cash flow (lagging only Transocean).
  • The only stock generating more of such "free cash" than it reports as "net earnings."
  • The only stock on the list, therefore, having both a PEG ratio and an enterprise value-to-free cash flow-to-growth ratio of less than 1.0.

Perhaps most important in these tough economic times, National Oilwell Varco is also the only stock on the list carrying more cash than debt on its balance sheet.

Foolish takeaway
All of which tells me that, while it's possible (and likely, if history repeats, or at least rhymes) that BMO got some of its recommendations wrong Tuesday, the banker is right on the money with National Oilwell Varco.

National Oilwell Varco is a Motley Fool Stock Advisor recommendation. The Fool owns shares of XTO Energy.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating about stuff he does understand under the handle TMFDitty, where he's currently ranked No. 428 out of more than 140,000 members. The Motley Fool has a disclosure policy.