This Just In: Upgrades and Downgrades

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.

You don't say
Sometimes, even bad analysts have good ideas. Hewlett-Packard (NYSE: HPQ) shareholders should be hoping that this is one of those times, as we now find CAPS newcomer Brigantine Advisors initiating coverage of HP with a "buy" rating.

According to Brigantine:

HP is a leading supplier of IT solutions for enterprise and consumers alike. HP sells storage, servers, services and software to its enterprise customers as well as personal computers and imaging and printing services to both the enterprise and consumer. Through the use of partners, such as Microsoft (Nasdaq: MSFT) and others, HP is able to differentiate its products by leveraging its vast global distribution, large R&D budget, and large balance sheet by acquiring cutting edge services and products ... HP is either the market leader or No. 2 in most of its market segments, with a significant installed base, large distribution network and large global footprint ...

Duh!
OK, so far, so obvious. Brigantine hasn't exactly dazzled us with the brilliance of its insight here. And admittedly, the analyst's record has been similarly uninspiring, as it stumbles from modest success to just-as-modest disappointment in the tech space:

About one-half of the analyst's 13 recommendations made to date have outperformed (or are outperforming) the market. Point-wise, Brigantine is so far basically just tracking the performance of any plain ol' vanilla S&P 500 index fund. However, given the short time we've been tracking Brigantine, I'm willing to give it a pass until there's more of a track record.

But there is one golden nugget of information in this week's buy recommendation: "We believe HP will be able to take share in several of its key market segments. Additionally, with IT budgets coming back and an aging IT hardware, we believe HP will outperform its peers over the next several years." When you combine growing market share in a growing market, Brigantine therefore thinks this makes a good case for buying HP today.

I agree.

Buy the numbers
HP presents an attractive valuation picture right off the bat. And the deeper you look, the more impressive the stock gets. Selling for less than 16 times earnings, the stock compares favorably with both archrival Dell (Nasdaq: DELL) and scourge-o'-the-PC-industry Apple (Nasdaq: AAPL), at 20 and 22 times earnings, respectively. And relative to consensus expectations of 13.4% long-term earnings growth, HP's 16 multiple to earnings seems not too far out of whack.

And in fact, it might even be cheap. You see, while HP reported just a skosh over $8 billion in "net earnings" over the past year, the company actually generated closer to $11 billion in free cash flow. Valued on that basis, the stock sells for a multiple of just 11.3, which looks even better relative to the anticipated growth.

Foolish takeaway
Brigantine may not have the greatest track record of any tech analyst, but then again, it doesn't need to be particularly brainy to get this one right. Hewlett-Packard is such a great company, at a great price, that picking this stock is quite literally a no-brainer.

My advice: Sometimes, the obvious answer is the right one. This is that time. Hewlett-Packard is that company.