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 two of the brightest lights in the market simultaneously speak out about a single stock ... and come to completely opposite conclusions? When one says "buy," but the other shouts "sell?" That's the dilemma facing Verizon (NYSE: VZ) investors this week.

Yesterday, stock shop Argus, ranked in the top 10% in CAPS, announced it was upgrading Verizon to "buy" in anticipation of the company landing an iPhone contract early next year. Citing:

  • the possibility that Verizon will break AT&T's (NYSE: T) stranglehold on the iPhone market next year,
  • Verizon's introduction of "4G" cell technology later this year,
  • and more generally, the company's "financial strength," and its mongo 5.9% dividend -- on par with AT&T's 6% and close behind Vodafone (NYSE: VOD) 6.6%, but better than the payouts at either Qwest (NYSE: Q) or Sprint Nextel ...

... Argus thinks Verizon has what it takes to beat the market -- and produce a near-20% profit for shareholders over the next year -- before counting the dividend.

Point, counterpoint
You might expect such a bullish pronouncement to send Verizon shares soaring -- but for Bernstein butting in with an opposite assessment.

Flipping Argus' arguments on their head, Bernstein pointed out that Apple-inspired optimism has already sent Verizon shares up 12% since the first of September. As a result, this rather staid telecom stock is now trading for an incredible 125 times trailing earnings. Even from a more generous forward-earnings perspective, Verizon's 14 times forward multiple looks rather optimistic in light of the 11.3 times earnings valuation at archrival AT&T.

Worse news still for Verizon investors: Of the two analysts, it appears Bernstein actually has the better record on telecom stocks. Over the several years we've been tracking their performance, Bernstein both has made more telecom picks than Argus, and gotten more of them right. Within the "diversified telecommunication services" industry, Bernstein's record of 71% accuracy cleanly trumps Argus' 60% accuracy rating.

And in this debate, I have to side with Bernstein. Why?

Valuation matters
Call me a skeptic, call me a Fool, but I simply don't see how an expected 6.5% grower like Verizon is worth 14 times forward earnings -- not even with the dividend to help push the valuation along.

I mean, am I intrigued by the seeming disconnect between reported earnings and free cash flow? Of course I am. Of course I like the fact that Verizon's enterprise value-to-free cash flow ratio of 8.2 is so much cheaper than either its current P/E ratio, or what next year's P/E looks to be. But Bernstein has a counter to even this argument: Namely, that once Verizon begins paying cash distributions to Vodafone pursuant to their joint venture agreement, dividend payments will have a claim to essentially 100% of Verizon's cash flow. Result: Verizon's ability to use its free cash flow to increase dividend payments to its own shareholders, or even chip away at its monstrous $57 billion debt load, will be hamstrung.

Foolish final thought
Mind you, AT&T's no debt-free spring chicken, either. A history of infrastructure building has left the company mired in nearly $69 billion in net debt. Still, only 77% of the company's earnings are earmarked for dividends today, giving AT&T significantly more flexibility to deal with its debt "issues."

Of course, the very best ideas in telecom investing may not be within U.S. borders at all. Cast your eyes south of the border to quickly find a stock with a cheaper forward P/E in the form of America Movil (NYSE: AMX). Look farther, and nearly debt-free Telkom Indonesia (NYSE: TLK) springs into view, bearing a modest 16 current P/E and paying a not-unrespectable 5.6% dividend. And off in the distance, New Zealand Telecom (NYSE: NZT) offers a 9.1% dividend that's kiwi-licious -- and it costs only 10 times earnings.

So I guess what I'm saying, when you get right down to it, is that this week, investors are fortunate in that they don't have to decide whether it's Argus, or Bernstein, that's right about Verizon. In seeking high-yielding, cheap telecom stocks, you've got options. Use them.

Fool contributor Rich Smith owns shares of Western Digital. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he was recently ranked No. 613 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Sprint Nextel is a Motley Fool Inside Value selection. Apple is a Stock Advisor pick. Telekom Indonesia is a Global Gains recommendation and an Income Investor pick. The Fool owns shares of Apple and Telekom Indonesia.

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.