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." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)

Given that, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We 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 ...
When ThinkEquity upgraded SanDisk (Nasdaq: SNDK) on Monday, you might have expected a better reaction from investors than the mere 0.3% price bump that resulted -- or even the 0.6% gain on the open this morning.

After all, according to TE, economics in the flash memory industry are in good balance today. Apple's (Nasdaq: AAPL) introduction of the iPad, iPad2, and i-etc., plus competing product offerings from the likes of Motorola Mobility (NYSE: MMI) , Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ), and Research In Motion (Nasdaq: RIMM), promise to drive demand for NAND flash in 2011 and 2012.

While TE acknowledges that NAND prices will probably drop 30% to 35% in average selling price over the next couple of years, the analyst believes product "bit growth" should be in the 75% to 80% range -- more than offsetting the drop in pricing. With its position "among the best-managed semiconductor companies" in the business, SanDisk will benefit disproportionally from "voracious" appetite for flash memory among the mobile device makers, according to TE.

I agree.

Let's go to the tape
Remember, Fools, this is ThinkEquity we're talking about here. A top-10%-ranked analyst; not some 50-50 hack. Over the past couple of years, TE has made a habit of picking winners in the computers and peripherals space. It's successively -- and successfully -- recommended not just SanDisk (a 201-point winner already), but also NetApp (105 points), Compellent, and QLogic. TE's correctly predicted both climbs and declines at STEC (Nasdaq: STEC). Along the way, it's racked up a record of 88% accuracy in the industry.

Company

TE Rating

CAPS Rating
(out of 5)

TE's Picks Beating
S&P by

SanDisk Outperform *** 201 points
NetApp Outperform *** 105 points
Compellent Outperform ** 43 points
QLogic Outperform *** 24 points
STEC Outperform *** 12 points (picked twice)

SanDisk stands out
In short, when ThinkEquity says it's time for SanDisk to shine -- I listen. And I look. Here's what I see:

  • A P/E ratio of less than 9.0.
  • Free cash flow that eclipses reported earnings by 8%, dropping the P/FCF ratio to just 8.1.
  • A cash hoard so massive that the enterprise value-to-free cash flow ratio is even cheaper: 7.2.

Now factor in a growth rate that most analysts agree will probably exceed 12% per year over the next five years, and I think you've got yourself a fine bull case for buying SanDisk -- and I think ThinkEquity has found itself another winner.

Fool contributor Rich Smith does not own shares of any company named above -- but he's giving SanDisk some serious thought. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 520 out of more than 170,000 members.

Motley Fool Options has recommended a bull call spread position on Apple, which is a Motley Fool Stock Advisor pick. The Fool owns shares of Apple. 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.