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 with an industry-leading medical devices giant that's fallen on hard times, lagged the market by a good 30 percentage points over the past year, and basically been given up for dead by the go-go growth crowd? Do you go with the flow, dump the stock, and take your tax loss? Or do you crunch the numbers, and when you realize the stock's selling for less than it's worth, take the plunge and snap up the bargain -- hoping the rest of the market will agree with you eventually?

That's the dilemma facing Medtronic (NYSE: MDT) investors these days, and that's the question Goldman Sachs addressed on Friday. Its answer: A resounding "buy!"

So what?
Now, I know what you're thinking: Who cares what Goldman thinks about Medtronic? Sure, Goldman says that Medtronic's new management team is better than the old one, that new pacemaker and spinal injury products will drive the stock higher. And yet, these are the same analysts who told us to sell Intuitive Surgical (Nasdaq: ISRG), St. Jude Medical (NYSE: STJ), and Varian Medical Systems (NYSE: VAR) last year -- trades that have all underperformed the market. They're the folks who told us the better buys were Zimmer Holdings (NYSE: ZMH) and Hospira (NYSE: HSP) -- which have also underperformed.

With a record like this, why would anyone take advice from Goldman on Medtronic?

Valuation matters
Simply put: Because they're right. At today's valuation, Medtronic is simply too cheap to resist. At today's prices, a share of Medtronic will cost you 13.2 times earnings, cheaper than any of the other medical devices makers named above. And if Medtronic's 8.6% projected growth rate isn't as fast as any of these alternatives, I'd argue that the company's 2.4% goes a fair way toward making up the difference, and pushing Medtronic closer to fair value.

What's more, if you look a bit closer at Medtronic's financials, you might just find that the stock is already selling for a discount. A review of the company's cash flow statements, for example, reveals that while Medtronic reported earning $3.2 billion last year, it in fact generated free cash flow more than 20% higher -- $3.9 billion.

That's enough cash profit to give price the stock at just 10.5 times free cash flow. And I'd argue that once the cash Medtronic generates starts appearing on its GAAP income statements, investors will realize that they've been pricing the shares too low -- and give Medtronic a higher valuation just like Goldman predicts.

How high?
How high could Medtronic ultimately rise? Goldman thinks $45 a share is a decent guess, and in defense of its valuation the analyst points out that earnings forecasts are already rising, and Medtronic's peers are also receiving higher "multiples" to their GAAP earnings.

Goldman's right. While there are notable laggards in the industry  -- Johnson & Johnson (NYSE: JNJ), for example, currently carries a P/E of only 12.6, an actual discount to Medtronic's valuation -- investors are more often paying through the nose to own "medical appliances & equipment" stocks. The average P/E ratio across the industry is 26.8, or more than twice the multiple investors currently pay for Medtronic.

Foolish takeaway
Now, does the fact that the average medical equipment stock get a P/E twice as big as Medtronic's mean the stock is 50% underpriced, and will shortly double in value? Of course not -- because the average medical equipment stock is also growing twice as fast as Medtronic is expected to grow. If Medtronic wants a similar valuation, it's simply going to have to get its growth engine in gear.

That said, at today's price the worst I can say about the stock is that its valuation looks fair. Any improvement in operations -- any at all -- and I expect Goldman will be proven right. This stock really could be ready to rebound.

Pfizer is a Motley Fool Inside Value selection, but Fool contributor 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. 649 out of more than 170,000 members. The Motley Fool has a disclosure policy.

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