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 ...
After nearly a year of watching their stock underperform just about every other stock on the whole dang S&P 500, is it finally safe for Medtronic (NYSE: MDT) shareholders to go "back in the water?"

According to Swiss megabanker UBS, it is. Medtronic's previous management may have been "slow [to] recognize declining growth and market share losses," but now that ex-CEO William Hawkins has announced his April retirement, that particular shark should be out of the water soon. Meanwhile, Hawkins' less-than-inspired leadership has driven Medtronic shares down to a valuation 13% cheaper than that of its peers in the medical equipment industry. With a forward P/E ratio of 10.0, Medtronic sells at a sizable discount to 12-plus P/E'd rivals St. Jude Medical (NYSE: STJ) and Johnson & Johnson (NYSE: JNJ) -- not to mention pricier alternatives such as Boston Scientific (NYSE: BSX) (at a 17.5 forward P/E) or Intuitive Surgical (Nasdaq: ISRG) (25.7 times forward earnings).

According to UBS, this valuation disconnect creates an attractive entry point in Medtronic stock, which, once under new (i.e., better) management, should be able to close the gap and secure for itself a "valuation more in line with peers."

But is UBS right?

Let's go to the tape
According to the lawyers, "past performance is no guarantee of future success." Then again, they're paid to say that. As for me, I know of no better gauge of an analyst's stock-picking acumen than its record of picking winners in the past. So let's take a quick look-see at how UBS has been performing in the medical equipment arena.


UBS Rating

CAPS Rating 
(out of 5)

UBS's Picks Beating 
(Lagging) S&P By

Edwards Lifesciences



226 points

Stryker (NYSE: SYK)



2 points

Zimmer Holdings (NYSE: ZMH)



(30 points) (picked twice)




(53 points)

At last report, UBS was still struggling to make heads or tails of this industry. While overall its picks have been profitable, the single smashing success of Edwards Lifesciences accounts for all the market outperformance UBS has ever posted in this industry. Take that one out, and the analyst would be underperforming the market by a sizable margin on its med-equip picks -- where on average, 54% of UBS' recommendations fail to even match the market's returns.

And call me a pessimist, call me a Fool, but I see a similar fate awaiting Medtronic shareholders who follow UBS' advice today.

A stock pick fit to deliver heart palpitations
Why does a company that makes UBS' heart go pitter-pat make me start looking for signs of a heart attack? Basically, because the numbers just don't look very good to me.

Oh, I'll admit 12.7 times trailing earnings, 10 times trailing free cash flow, and 10 times next year's expected earnings, don't look particularly pricey on the surface. But for a stock that most analysts think will struggle to put together even 9% long-term earnings growth, they're not exactly bargain prices, either. About the best I can say about Medtronic's valuation today is that it looks more or less fairly priced -- not cheap, but not overly expensive, at least not with that tasty 2.4% dividend yield to buck up the returns.

On the other hand, the company also has a sizable debt load weighing down its balance sheet -- nearly $10.6 billion worth of obligations, offset by only $3.5 billion in cash. Those numbers don't figure into the P/E ratio, or the P/FCF ratio either -- so if you're considering following UBS' advice and buying the stock, make sure you don't forget the debt factor in figuring your target price.

Foolish takeaway
As for me -- I'm a debt-averse kind of a Fool. While I'm willing to accept some balance sheet risk in exchange for the chance to own a deeply undervalued stock, in my opinion Medtronic simply isn't there yet.

Fool contributor Rich Smith does not own shares of (nor is he short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 628 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Stryker is a Motley Fool Inside Value recommendation. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. Johnson & Johnson is a Motley Fool Income Investor choice. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of Johnson & Johnson, and Medtronic. Motley Fool Alpha owns shares of Johnson & Johnson.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.