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 ...
Last year, I made the controversial prediction that General Electric (NYSE:GE) would become the best-performing stock of 2008. It's, um, fallen a little short of that (down about 50% over the last 12 months). But here's the good news: JPMorgan Chase thinks we've seen the bottom, and GE now has nowhere to go but up.

Upping its rating on the stock to "overweight" yesterday, JPMorgan said GE may be the "last of the low-expectations plays" -- a reference to the companies everyone expected to disappear just months ago: Ford (NYSE:F), Citigroup (NYSE:C), and Bank of America (NYSE:BAC). Once it became apparent that rumors of their death had been greatly exaggerated, the stocks climbed out of their graves, and fast. Now JPMorgan thinks the same thing will happen with GE.

JPMorgan gave several reasons why it likes GE:

  • The conglomerate's industrial businesses could produce greater free cash flow than expected as the economic recovery takes hold.
  • And/or GE could raise cash from finance-asset sales, bolstering its balance sheet and possibly avoiding the need to raise capital in the future.
  • In particular, JPMorgan thinks NBC Universal could bring good things to light as the ad market recovers. In addition, the possible break-up or spinoff of NBC Universal could "unlock" about $30 billion of value for GE.

But when you get right down to it, JPMorgan is making a gut call on GE. Citing "ongoing fear around GECS" (GE Capital Services), where the "Wall of worry" remains intact, JP simply feels that so much bad news has already been priced into the stock, and that "a little good news can go a long way" towards lifting the stock.

Let's go to the tape
I have to say, such fuzzy analysis doesn't especially appeal to me. And yet, I must also admit that JPMorgan's demonstrated a talent for picking winning picking industrial conglomerate stocks:


JP Says


JP's Picks Beating S&P by




33 points




18 points




<1 point

So far, this banker is quite literally batting 1.000 in the Industrial Conglomerates sphere. It's made only three picks prior to the GE call, but it's gotten every one of them right.

My hunch: It's calling GE right as well.

Umm, speaking of records
Alright, I admit -- I was dead wrong about GE last year. But now it's not just me saying GE's a bargain. It's uberbanker JPMorgan. And it's got the numbers to back it up:

  • GE sells for an 11 P/E right now, which looks cheap relative to peers like United Technologies (NYSE:UTX) at 14, and Honeywell (NYSE:HON) at 12 .
  • Meanwhile, most analysts have GE pegged for 8% annualized five-year growth, which is about what they're expecting out of Honeywell, and actually slightly better than the expectations for United Technologies.
  • GE offers a 2.8% dividend yield, which is right in line with its peers.
  • And GECS's financial issues notwithstanding, the firm's overall operations look sound, helping to churn out $23.6 billion in free cash flow over the last 12 months.

That makes for an awfully tempting price-to-free cash flow ratio of 6.5, and provides a nice stream of cash.

Foolish takeaway
While I admit that the company's capital services division does give me pause, on balance, I do think JPMorgan could be right about buying GE today. Relative to the competition, the stock looks cheap.

And relative to its competition, JPMorgan looks pretty smart.

Tyco International was formerly a Motley Fool Inside Value selection.

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. 602 out of more than 140,000 members. The Motley Fool has a disclosure policy.