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.

A parade of losers
And speaking of "sorry," Wall Street's Wise Men lined up to issue investors a great big collective mea culpa yesterday, pulling their buy ratings on solid state drive-maker STEC (Nasdaq: STEC) en masse. JPMorgan and Deutsche Bank, Thomas Weisel and Northland Securities. One and all, they retracted their formerly bullish pronouncements, declaring in horror:

  • "We had been too optimistic, thinking the EMC (NYSE: EMC) inventory overhang would be a one-quarter issue." (JPMorgan).
  • Calling STEC's guidance: "worse than even our worst-case expectations." (Deutsche).
  • And adopting a neutral stance on the stock: "pending more clarity on the true end demand for enterprise SSDs." (Thomas Weisel).

What spooked the Street?
Not STEC's fourth-quarter earnings news, certainly. To the contrary, STEC reported a mammoth 86% gain in revenues for Q4, earned $0.47 per share (versus zilch in last year's Q4), and generated a whopping $92.4 million in free cash flow over the course of fiscal 2009. So much cash now has STEC bulging at the seams, its balance sheet plumped out to more than $145 million cash and no long-term debt to speak of. In almost every respect, STEC gave investors everything they could have hoped for. Every respect except one, that is.

That one, as you may have guessed from the quotes up above, is guidance. Playing coy about the source of its troubles, STEC CEO Manouch Moshayedi confided that: "the first half of 2010 will be a trough period for our business due to an inventory carryover by our largest customer."

By "largest customer," Moshayedi meant "EMC." And by "trough," he meant that Q1 2010 sales will fall at least 50% short of Wall Street's hoped-for $70 million in revenues, while STEC loses about $0.12 per share, rather than earning the $0.20 called for in analyst estimates.

Uh-oh
Uh-oh is right. STEC booked more than $354 million in sales last year. But the current quarter's guidance, if projected through the rest of 2010, suggests the company could do less than one-half that amount. Unless, of course, Moshayedi really is right about this "trough" thing, and STEC finds a ladder PDQ, and can clamber out of this here hole.

Will it? Can it? Or are STEC shareholders stuck in a value trap? That's the question we face today.

Personally, when I look at the numbers qua numbers, I'm awfully tempted to stick my toes in this trap and take my chances. I mean, we're looking here at a stock selling for less than six-times free cash flow, folks. A company jam-packed with enough cash to back up fully 28% of its market cap. That's awfully tempting.

There's just one thing keeping me from investing in STEC today, though, and that's Hapoalim Securities.

Who-poalim?
Hapoalim. You probably know them as the folks who've consistently (and rightly) panned such solar superstars-turned-supernovas as First Solar (Nasdaq: FSLR) for months. But Hapoalim also issued investors a dire warning on STEC back in October, calling STEC perhaps "the biggest short of all time".

Hapoalim looked at STEC's success in SSD but, reading the writing on the wall, predicted that profits this good meant competition couldn't be far off. Before long, the analyst predicted, rivals like Intel (Nasdaq: INTC) and Seagate (NYSE: STX) would swarm to invade STEC's turf, bringing with them greater manufacturing capacity, and threatening to steal away STEC customers like Hewlett-Packard (NYSE: HPQ) and -- you guessed it -- EMC.

The same EMC that STEC now tells us bought too much SSD from STEC last year. The same EMC that STEC now tells us will "carry over" much of its SSD inventory, place essentially no "meaningful production orders" with STEC, and contribute basically nothing to STEC's revenues through the first half of this year.

Foolish takeaway
Hapoalim was absolutely right about the dangers inherent in STEC's stock. Everyone else was dead wrong. (Including, probably, me -- when I say that the stock looks so doggone cheap that I might buy it despite the risks.)

Last I heard, though, Hapoalim was telling investors to look for STEC to bottom somewhere near $5 a share. So before following my lead, you might want to take a cue from all the wounded bulls on Wall Street right now. Sit tight, and see if the stock price here -- already low -- goes lower still. I wouldn't have thought it possible myself, but then again, no one did.

No one but Hapoalim.

Intel is a Motley Fool Inside Value choice, First Solar is a Rule Breakers recommendation and Motley Fool Options has recommended buying calls on Intel, but Fool contributor Rich Smith has no position in any of the stocks named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 558 out of more than 150,000 members. The Motley Fool has a disclosure policy.