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.

As the worm turns
It's never easy investing in a cyclical industry, and this week, Intel (Nasdaq: INTC) shareholders got another lesson in just how hard reality can become -- and how quickly.

I mean, just two months ago, Intel was reporting its "best quarter ever." (Yes, they used those exact words,) and boasting that the rest of the year would be similarly strong. Yet here we sit, awaiting news of how Q3 played out (earnings are due next month), and what do we hear now?

  • "Nearterm PC demand is weak while the 4Q outlook remains cautious ..."
  • "Intel's customers expect at least a 15% price reduction for mainstream processors on top of the ~50% cut to the high-end Core i7 prices already implemented ..."
  • "Intel will see pressure on its gross margin, a key driver of Intel's shares."

UBS speaks
These words come straight from the mouth of the analyst that downgraded Intel yesterday: UBS. And while I'd love to be able to reassure you that UBS doesn't know what it's talking about, the truth is that according to our CAPS rankings, UBS places in the top 10% of analysts we track. Worse still (for Intel investors), it's on a veritable red-hot streak in the semis sector:


UBS Says


UBS's Picks Beating (Lagging) S&P by

Skyworks Solutions (Nasdaq: SWKS)



128 points

RF Micro Devices (Nasdaq: RFMD)



40 points (3 picks)

Marvell Tech (Nasdaq: MRVL)



17 points (3 picks)

But there's good news, too (again, for Intel investors; the news isn't as good for UBS's press department): No analyst is perfect, and UBS does goof from time to time on its semiconductor recommendations. Current recommendation Advanced Micro Devices (NYSE: AMD) is, for example, lagging the market by a good seven percentage points. MEMC Electronic (NYSE: WFR), another UBS fave, is doing even worse -- trailing the S&P's performance by 66 percentage points. And long-term, this banker's record of guessing right in the sector stands at an unenviable 47%.

There's also the fact that UBS's bearish thesis for Intel doesn't really jibe with the bullish tone Intel CEO Paul Otellini took in this morning's Wall Street Journal interview. While admitting that he sees "softness" in consumer PCs, Otellini assured the Journal that "the corporate part of the business is still very good." And Intel's boss sounded positively ebullient about the recent purchase of Infineon's wireless business, the rollout of "phones with Intel architecture in them in 2011," and the prospects for Google (Nasdaq: GOOG) TV, calling the latter "a very powerful model."

Moreover, says Otellini, if Intel succeeds in hitting the midpoint of its Q3 guidance, revenue should come in at: "$11 billion, which is the best Q3 in history. We haven't talked about Q4 yet ... but the view in term of unit growth is still in the high teens ... If you step back from the perturbations, it's still going to be a dynamite year, and probably the best year in our history."

The more things change
So while Intel may be walking back some of its happy-talk of yester-quarter, the upshot still appears to be pretty optimistic, in Otellini's view. And call me a crazed optimist, but I'm going to have to side with Intel on this one, and against UBS.

Why? Because the numbers demand it. Consider: With a P/E of less than 11, Intel seems an obvious "buy" based on consensus projections of 12% annual five-year earnings growth -- but the good news doesn't stop there. There's also ...

  • the firm's hefty 3.5% dividend to consider ...
  • and its $16 billion net cash hoard (which, remember, is not figured into the P/E) ...
  • and its free cash flow, which outstrips reported net "profits" by a good 15% ...
  • resulting in a mouth-wateringly low price-to-free cash flow ratio of less than 8.

Foolish takeaway
Numbers like these are just too cheap to ignore, Fools. While I admit to having reservations about Intel's recent acquisitions spree, and the premium price it paid for the dubious value of McAfee, the fact remains: Intel is priced to sell -- and UBS is wrong to turn up its nose at it.

Rich Smith owns shares of Google. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 613 out of more than 165,000 members. The Motley Fool has a disclosure policy.

Google and Intel are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. The Fool owns shares of and has written puts on Intel. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Google and Marvell Technology Group.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.