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 ...
What do you do when one of the best investors in the business recommends buying arguably the best hi-tech shops in the world, and investors respond with ... a yawn? Personally, I listen up. Because if Avondale Partners is onto something here, and investors are ignoring it, there could be real money to be made in Cisco Systems (Nasdaq: CSCO) stock.

As you may have heard by now (or may not, judging from the stock's anemic response), Avondale initiated coverage of Cisco yesterday with a "buy" rating, citing Cisco's:

  • $4.16 per share balance of cash (more than 18% of market cap).
  • Galloping invasion of novel markets for home video (i.e., Flip) and stereo (via Linksys), as well as growth in "telepresence," security products, and enterprise wireless.
  • "Server virtualization" and "cloud computing," two trends promising to drive demand for data centers and Ethernet switches.
  • "New possibilities to dominate in routers."

Avondale argues Cisco's poised to outperform the market, and that the shares could hit as high as $30 by the end of 2011. If Avondale's right about all this, investors today could be sitting atop 30% profits within the next 18 months, a number almost certain to outperform the broader market. But is Avondale right? 

Let's go to the tape
With the shares up a bare percentage point since Avondale's announcement, it seems investors have yet to be convinced -- and for good reason. Fact is, while a superb analyst in most things-investing (Avondale ranks in the top 10% of investors we track on CAPS), this analyst has often fallen short of the mark when it comes to recommending Communications Equipment stocks.

Ciena (Nasdaq: CIEN) and Neutral Tandem (Nasdaq: TNDM), Sierra Wireless (Nasdaq: SWIR) and Harmonic -- Avondale's record reads like a who's-who list of companies that shoulda-coulda-woulda hit it big, but somehow, never did. With the sole exception of Neutral Tandem (a Motley Fool Hidden Gems recommendation, by the way), each of these past Avondale picks is reporting no net profits whatsoever earned over the past 12 months. 

And then there was one
And yet, to my Foolish eye there's one big difference between Avondale's past failures, and the very likely success of its latest recommendation. Because in contrast to the also-rans named above, Cisco is very, very profitable indeed. Even better -- investors really aren't being asked to pay much of a premium for Cisco's cash-generating prowess.

At 19 times earnings, Cisco sells for a lower P/E ratio than any of Juniper (Nasdaq: JNPR), Alcatel-Lucent (NYSE: ALU), or Ciena. And while you might object that the last two are "gimmes," seeing as they're unprofitable, and their P/Es approach infinity, it's worth noting that judged on the basis of next year's expected earnings, Cisco remains one of the cheapest stocks in the group.

Foolish final thought
But the really good news here is that Cisco may be even cheaper than it looks on the surface. Consider: Over the past 12 months, the company generated a whopping $8 billion in free cash flow, a number even bigger than the $6.9 billion it reported as "net earnings." Now, if you net out the cash-per-share that Avondale mentioned, and divide what remains of the company's market cap (what we call here the "enterprise value") by the free cash Cisco generates annually, what you wind up with is an enterprise value-to-free cash flow ratio of barely 13.

That's right in line with the 12.5% long-term growth rate that most analysts expect out of Cisco, by the way. If Avondale's right, though, and Cisco outperforms expectations over the next 12 to 18 months, the stock just might be one of the biggest bargains on the market today.