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.

Goldman's at it again
It's been a busy week for Goldman Sachs. Yesterday, we told you how the investment banker shook up the banking sector just hours before the Fed injected $600 billion into the market. Speaking of injections, now it seems Goldman has turned its attention to Big Pharma.

Initiating coverage on five separate biotech stocks yesterday, Goldman placed big bets on Amgen (Nasdaq: AMGN) and Biogen Idec (Nasdaq: BIIB) to fail, told investors to pick Alexion (Nasdaq: ALXN) instead to succeed, and hedged on Gilead (Nasdaq: GILD) and Celgene (Nasdaq: CELG). According to the analyst:

  • Amgen's new denosumab drug offers only a "modest benefit" to osteoporosis and cancer patients, while charging a "premium price" in "competitive markets." Not exactly a lucky combination.
  • Meanwhile, Biogen may be a standout in the multiple sclerosis market today, but its market will face disruption from competition from MS drugs that can be taken orally.
  • Gilead and Celgene get just a shrug and an offhand "current valuations [look] appropriate" from Goldman.
  • In stark contrast, Alexion's "Soliris is one of the best biologic assets to own, with high growth and long terminal value, making the company an attractive M&A candidate."

Let's go to the tape
Admittedly, investors who've followed Goldman's advice on pharma stocks in the past haven't always been pleased with the results. For every winning Allergan (NYSE: AGN) or Illumina idea they've given us, Goldman has handed out an Onyx or Teva (Nasdaq: TEVA) to even the score by losing us money. In this industry, the analyst has a record of almost perfectly mediocre performance, starring about as many losers as winners:


Goldman Said:

CAPS says:

Goldman's Picks Beating (Lagging) S&P By:

Allergan Outperform **** 17 points
Illumina Outperform **** 10 points
Onyx Outperform *** (17 points)
Teva Outperform ***** (18 points)

Although Goldman tells us to "expect continued downward revisions to revenue, the key valuation driver for large-cap biotech," maybe things won't turn out that badly. If so, Gilead looks reasonably attractive at less than 12 times earnings, with growth projections verging on 13% per year going forward.

But even if Goldman's wrong about Gilead, the consensus estimates for Amgen and Biogen -- both of which are projected to post only high-single-digit growth over the next five years -- look unattractive in light of the stocks' double-digit P/E ratios. Similarly, Celgene looks less than bargain-priced at 34 times earnings.

Alluring Alexion
Not so with Alexion. Even if Goldman is wrong about everyone else, and even if it's wrong about the M&A prospects at Alexion, the company really is a great stock to own.

Selling for just a little more than 21 times earnings, but with long-term growth projected to top 31% annually over the next half-decade, Alexion looks for all the world to be a "growth at a reasonable price" bargain. The company has two straight years of positive free cash flow under its belt now, and in the first couple quarters of this year, at least, free cash flow has run ahead of reported GAAP income. That helps to explain how a company in the notoriously cash-burning drug business is currently sitting atop nearly $300 million in cash, with hardly any debt worth mentioning.

I think Alexion fully deserves Goldman's "conviction buy" rating. But that's just my opinion. If you've got a different one, we've got the place to state your case: Motley Fool CAPS. Click on over, and tell us what you think.

Gilead Sciences and Illumina are Motley Fool Stock Advisor picks. The Fool owns shares of Teva Pharmaceutical Industries.

Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 617 out of more than 170,000 members. The Motley Fool has a disclosure policy.