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.

Rude French diss Capital One
What is it with the French, anyway? One day, they're saving your Revolution and sending you pretty statues as presents. The next, they're making fun of your accent and downgrading your banks. This morning, the analysts at Credit Agricole revoked their "outperform" rating on Capital One (NYSE: COF) and downgraded the credit card specialist -- all the way to "underperform." (Which is French for "sell.")

Why? It seems pretty obvious that this is a reaction to Capital One's Friday announcement that it's buying ING Direct USA from ING Groep (NYSE: ING) for $9 billion. But for the life of me, I can't figure out what it is about this deal that has so ticked off Credit Agricole.

Crunching numbers
Beginning at the beginning, there's a lot to like about Capital One, per se. The stock sells for just 7.3 times earnings, despite being pegged for 8% long-term profit growth on the Street, and paying a modest, if unremarkable, 0.4% dividend yield. On its face, the price seems cheap. The more so when you consider how very well Capital One stacks up in comparison to America's other megabankers:


Return on Assets

Return on Equity

Profit margin

Capital One 1.7% 12.9% 24%
Wells Fargo (NYSE: WFC) 1.1% 11% 19%
JPMorgan Chase (NYSE: JPM) 0.9% 11.4% 22%
Goldman Sachs (NYSE: GS) 0.8% 10.4% 20%
Citigroup (NYSE: C) 0.5% 6% 15%
Bank of America (NYSE: BAC) negative negative negative

Source: Yahoo! Finance

By any conceivable measure, Capital One looks like a bargain by the numbers. And if you think Capital One doesn't deserve to be listed in such august company ... think again. No longer your father's credit card company, Capital One is now a bona fide megabanker thanks to its credit crisis-era purchases of banks such as Chevy Chase. Indeed, once it completes its purchase of ING Direct, Capital One will rank as the sixth-largest U.S. bank by size of deposits.

Beyond the numbers
Capital One also makes some of the best commercials out there when hawking its credit card products. While the "Vikings" ad series is arguably getting a bit long in the tooth, it still packs some laughs. And now Capital One is marrying its marketing genius and financial heft to the company that kick-started the "virtual banking" phenomenon: ING Direct. (As an added bonus, Bloomberg is telling us today that ING Direct's customer base is one of the most loyal you'll find anywhere in banking, boasting a turnover rate among customers that's less than half the industry average.)

Put it all together, and I think Capital One's purchase of ING Direct is a genius move. Contrary to Credit Agricole's opinion, I believe it makes the stock more attractive rather than less -- and I'm not alone. In negotiating its purchase of ING, Capital One arranged to pay less than one third of the $9 billion price in COF shares, preferring to pay cash for the bulk of the transaction.

Fools, you don't pay cash for a company when you can use overpriced shares to fund the deal. You pay cash when you think your shares are cheap. And Capital One is cheap.

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. 449 out of more than 170,000 members. The Motley Fool owns shares of JPMorgan Chase. The Fool owns shares of and has opened a short position on Bank of America. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. 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.