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.

And speaking of the best ...
For the third time in as many days, ExxonMobil (NYSE: XOM) shareholders have found themselves the victims of another downgrade.

On Monday, ace oil investor Deutsche Securities knocked the stock on concerns that the XTO integration effort is foundering, and worried publicly over the "fundamental over-supply" of natural gas that is XTO's bread and butter (concerns that fellow analyst Raymond James quickly echoed). No sooner had the words left these analysts' lips, though, than out came RBC Capital Markets Tuesday, and seconded that emotion.

According to RBC, natural gas prices are doomed to average only $4.60 per million BTUs this year, before rebounding to only $5 next year. True, both of these numbers are higher than the current $3.84 Henry Hub Spot rate on gas -- but with winter weather just around the corner, you wouldn't expect any different. Also worth noting is the fact that even a $5 spot price would be a mere fraction of the mid-teens pricing natural gas enjoyed as recently as 2005, or the plus-10 prices o more recent 2008 memory. With Exxon having nearly tripled its exposure to natural gas through the XTO buy, it's little wonder that analysts are now down on the stock.

Now here's what may surprise you: Even if all three analysts are wrong about the trend in gas prices, they're still right about ExxonMobil. This stock's no "buy." Heck, it may not even be a "hold."

Let's go to the tape
Before deciding what to do with your Exxon shares today, consider the source of these three downgrades. Deutsche, which first rocked the boat earlier this week, is one of the best oil & gas investors in the business. This analyst ranks in the top 10% of investors we track on CAPS, and boasts a record of 67% accuracy on its active picks in the Oil, Gas and Consumable Fuels sector, including notable winners such as: ConocoPhillips (NYSE: COP) and Occidental Petroleum, where the Deutsche-bump has them beating the market by 12 and 61 percentage points, respectively.

Raymond James's record is even better. While it doesn't publish as many ratings as Deutsche does, Raymond has racked up a record of 100% accuracy on the three picks it's made in the sector -- and shows a commanding understanding of the natural gas sector, as demonstrated by its 21-point drubbing of the S&P 500 with Clean Energy Fuels (Nasdaq: CLNE).

Best of all in RBC Capital Markets. Ranked one of "the Best" investors on Wall Street by CAPS, RBC focuses intently on the oil & gas industry, its No. 1 area of coverage. Historically, the majority of its recommendations here have worked out well for investors; currently, recommendations ranging from giant Chevron Corp (NYSE: CVX), through midcap Linn Energy (Nasdaq: LINE) and all the way down to tiny Copano Energy (Nasdaq: CPNO) are just plain thrashing the market's returns: 

Not meaning to beat a dead horse there, but if you're going to listen to anybody on the subject of oil stocks, these three analysts are hard to beat.

Even if they're wrong
Let's face facts, Fools: No one knows where natural gas prices are going. Warren Buffett doesn't. Goldman Sachs has proven it doesn't. I certainly don't, and in all likelihood, Deutsche, Raymond James, and RBC are just making educated guesses here as well.

But when the future's uncertain, there's one thing that will never let you down: Cold, hard, historical fact. So here are the facts on ExxonMobil: First off, the company's not as cheap as it looks. While Exxon boasts of having earned $24.6 billion over the past 12 months, in fact, only $16 billion of that benefitted investors in the form of free cash flow.

Face the Foolish facts
As a result, when you buy Exxon today, you're not so much paying 11.8 times earnings for a 15.2% grower, as paying 19.5 times free cash flow for the same growth rate. Even Exxon's hefty 2.9% dividend payout is going to struggle to support this valuation. It's certainly not enough to qualify the stock as a "cheap" investment.

As a result, the fact of the matter is this: Even if the analysts are wrong about natural gas pricing, they're right on ExxonMobil. This stock's at best a "hold," and won't be worth owning till it gets stops producing hollow income statements, and starts filling 'em up with cold, hard cash.