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 some months now, we've been delving into the question of: "Whither memory?" Is the future of computer storage in the hands of low-cost, workaday hard disk drives manufactured by the likes of Seagate (NYSE: STX) and Western Digital (NYSE: WDC), or will we soon see the day when the pricey, lightning-fast solid-state drives used in today's smartphones and tablet PCs drop in price, gain mass market traction, and consign HDDs to the dodo's fate?

This week, the tech wizards at RW Baird pronounced their vision of the future -- and the news is both good and bad (depending on how you look at it.)

Good news first
If you're a shareholder of one of the major SSD industry players -- STEC (Nasdaq: STEC), SanDisk (Nasdaq: SNDK), or Micron (NYSE: MU) for example -- you'll be gratified to hear that things look pretty good for flash memory in the immediate future. Baird took the opportunity Monday to upgrade the incredibly undervalued SanDisk on the reasoning that we'll see "significantly better-than-seasonal NAND pricing for 1H11," ensuring "stable 2011 gross margins" for SanDisk.

Notes Baird: Verizon (NYSE: VZ) will soon be selling an iPhone, and Apple will be introducing its second-generation iPad. In each case, that's going to boost demand for NAND. Plus, the fact that NAND pricing has declined in recent months could well convince Apple to double the flash content in the latest iPad -- increasing demand for flash memory still farther. And as we all learned in Econ 101, when demand rises, price follows. Hence -- stronger margins for SanDisk (and probably, for everyone that competes with 'em.)

Good news comes in pairs
It can't hurt that Baird's bullish stance on SanDisk was basically echoed by Applied Materials (Nasdaq: AMAT) last week, when the semiconductor equipment maker predicted that tablets will lead a "transition to solid-state storage." According to AMAT, NAND volumes will near-double next year.

Now, for the bad news ...

Let's go to the tape
Historically, Baird has been more often wrong than right on its recommendations. Over the four years that we've been tracking the analyst's performance on CAPS, fewer than half its computers and peripherals picks have outperformed the market. That's not particularly encouraging, but there's good news here as well: Recently, the analyst has gone on a real winning streak in these kinds of stocks; out of the 10 picks it currently has active, eight (including Apple and NetApp) are beating the market.



Baird Says


Baird's Picks Beating S&P by

Apple Outperform *** <1 point
NetApp Outperform ** 128 points


And call me a crazy optimist, call me a Fool, but I think that in picking SanDisk this week, Baird has virtually assured itself of keeping that winning streak alive.

Why? Because the numbers practically demand it. With the average Wall Street analyst agreeing that SanDisk can keep its earnings growing north of 14% per year for the next half-decade, SanDisk looks a steal at a price of less than nine times earnings. When you consider that the company's free cash flow outpaces reported profit under GAAP by better than 20%, the stock looks even cheaper -- the price-to-free cash flow ratio here is just 7.1.

Foolish takeaway
The way I look at it, this gives investors in SanDisk today close to a 50% margin of safety on the stock -- even if Baird is wrong, and Wall Street is not overestimating the risk of NAND pricing erosion.

Now granted, if you're a glass-half-empty kind of a Fool, you can argue that stronger NAND pricing is actually sort of bad for SanDisk and its peers -- that for this industry to grow, and ultimately displace hard disk drives, you need prices to fall faster rather than slower to spur demand. But if Apple's already jumping in and doubling the size of its SSD memory needs, I'd argue prices have already probably fallen enough to get this boulder rolling downhill. And if Apple's upping of its NAND orders in consequence permits these companies to increase production and still earn a decent profit margin from the business, it may already be time to start writing epitaphs for the HDD makers -- and writing buy orders for SanDisk.

Rich Smith owns shares of Western Digital (and so is obviously not thrilled with this development.) You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 629 out of more than 170,000 members. Apple is a Motley Fool Stock Advisor pick. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.The Motley Fool has a disclosure policy.