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 ...
In the annals of investment banking, Goldman Sachs deserves a chapter all its own. Seldom has a company been so reviled, admired, envied, and even feared. But love it or hate it, there's no denying Goldman is a force to be reckoned with. When these guys predicted that oil would surge to $100 and beyond back in '06, many Fools laughed. The laughing stopped when oil proceeded to do just that. And when Goldman followed up its $100 prediction with a call for $200 oil just two years later, not only did no one laugh -- investors actually bid up oil futures, helping Goldman to fulfill its own prophecy. (Almost.)

So ... when Goldman updated its predictions for the oil sector yesterday, in the wake of the Deepwater Horizon disaster, I listened up. Here's what I hear:

The big picture on Big Oil
Generally speaking, Goldman has tempered its optimism on Big Oil. Across the oil-services sector, the megabanker spilled out a gusher of downgrades:

  • Transocean (NYSE: RIG) and Noble (NYSE: NE) -- knocked down to neutral.
  • Atwood Oceanics (NYSE: ATW) and Diamond Offshore (NYSE: DO), itself the subject of an oil spill scare -- knocked from neutral to "sell."

Yet Goldman wasn't all down on the sector. To the contrary, the sell-off in Big Oil over the past few weeks does appear to have created a few bargains, and Goldman skimmed a few right off the top. In particular, the banker sees Ensco (NYSE: ESV), Nabors Industries (NYSE: NBR), and Halliburton (NYSE: HAL) as all eminently worthy of owning.

Drilling for value in murky waters
Why these three names in particular? I honestly don't know, and Goldman isn't making its thinking public in full. All we have to go on is a brief sketch of the new ratings from To me, the only valuation that looks really compelling is Ensco.

Whereas currently unprofitable Nabors, and Halliburton at 22 times earnings, don't really attract me, Ensco certainly does. Cash-rich and debt-light, Ensco sells for a seven-times multiple to trailing earnings, and only about 7.9 times next year's projected earnings. With a 4% dividend to tide you over till then, and with analysts predicting 14% growth over the long term, Ensco looks almost too cheap to believe.

A long slide down the oil slick
Sure, most analysts expect to see the contract driller post lower earnings this year than last. And Goldman warns that earnings in the oil patch will fall about 11% short of previous predictions this year and will miss next year's guesses by 13% as the moratorium on deepwater drilling in the Gulf extends from the current six-month term to perhaps a full 12 months.

But that's probably the worst of it, and the banker sees 2011 as the trough year for earnings. By 2012, Goldman sees earnings beginning to return to previous trend lines, and we might get back to "normal" soon after that. If or when that happens, investors will almost certainly look back with regret for failing to buy Ensco at today's price.

Foolish takeaway
Now granted, free cash flow at Ensco currently backs up less than one-third of reported earnings.

Would I prefer to see Ensco generating just a wee bit more cash on its cash flow statement than it currently sports?

Of course I would. You know me -- I'm a free cash flow junkie. But oil investors have always been a more forgiving lot, inclined to trust their companies' reported GAAP earnings, and give them a pass on their free cash flow faults. If you're ready to roll with the wildcatters, and gamble on Goldman's long-term bullish stance, you might as well do it with the cheapest stock of the bunch.

That's Ensco.