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." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Wall Street talks telecom
Two days ago, I suggested that market-lagging Infinera (Nasdaq: INFN) could turn into a real superball stock. I should probably thank the telecom-equipment maker for quickly proving me right. Just hours later, Infinera reported results that wowed Wall Street, sending the company's shares soaring 8%.

Yesterday, the Street responded with an upgrade for Infinera, and renewed interest in optical networking stocks in general. Tiny MKM Partners pulled its sell rating on Infinera, and market heavyweight Morgan Stanley weighed in on the sector with a series of completely new ratings:

  • Oclaro (Nasdaq: OCLR), now rated underweight with a $5 price target
  • JDS Uniphase (Nasdaq: JDSU), the biggest name of the trio, received an equal weight rating
  • and Finisar (Nasdaq: FNSR) was tagged overweight.

On Friday, another brand-name analyst, Jefferies & Co., initiated coverage of Finisar with a similar buy rating. Deriding Wall Street's worry over inventory-build in optics as an "overreaction," Jefferies noted that demand for optical networking products remains strong. It predicts that as cloud computing picks up speed, the demand for data capacity will quickly suck up any excess inventory. Like Morgan Stanley, Jefferies thinks this is good news for Finisar, which makes the interconnection components used in local, storage, and metropolitan area networks (LANs, SANs, and MANs).

Let's go to the tape
The analysts may be correct. While Morgan Stanley doesn't report its ratings publicly through, Jefferies does. And according to our CAPS analysis of its past picks, Jefferies gets the majority of its stock picks right, which could lend credence to its belief that the market's too concerned about a supply glut.

But even if Finisar really is in the right place at the right time, I'm worried that the stock's not selling for the right price. At 18 times earnings, Finisar looks only slightly overpriced for the 15% long-term growth most analysts expect it to produce. Bump that growth rate up a bit, and it might even be fairly priced, except for one thing: It's not generating cash profits anywhere near the level of its claimed net income. Free cash flow at Finisar for the past 12 months comes to only $31 million, versus $88 million in GAAP profits.

I agree with Morgan Stanley that JDS is overpriced at 35 times FCF and 52 times earnings. I wouldn't even consider buying into cash-burning Oclaro -- or similarly inflammable Alcatel-Lucent (NYSE: ALU) or Ciena (Nasdaq: CIEN), for that matter. But I have to say that I'm not particularly enthused about Finisar, either.

A better idea
If you agree with Jefferies about optical networking's bright future, Corning (NYSE: GLW) might be your better buy.

Sure, I've been panning Corning for years. I've criticized the company's continual failure to generate free cash flow equal to its claimed GAAP income -- much as I'm now saying about Finisar. But even if Corning isn't as good as it claims to be, it's good enough to merit its current price.

Right now, Corning sells for a $26.5 billion market cap, and reports trailing GAAP income of $3.5 billion. Though it only generated $2.4 billion worth of free cash flow over the last 12 month,  that still gives the stock a price-to-free cash flow ratio of 11. If you net out Corning's cash on the balance sheet, its enterprise value-to-free cash flow ratio gets even cheaper. With analysts projecting 11.5% long-term growth at Corning, and the company paying out a modest 1.2% annual dividend, I think that finally makes Corning cheap enough to own.

Foolish final thought
Of course, I'd prefer to see Corning reporting free cash flow of $3.5 billion, or even more free cash than its claimed net income? But historically, that almost never happens at Corning. Still, at today's depressed stock price, Corning costs less than it's worth. It's cheap enough to own even with its habitual FCF discount. To me, Corning stock may be best option available to play a surge in optical bandwidth demand on the cheap.

The Motley Fool owns shares of Infinera. Motley Fool newsletter services have recommended buying shares of Infinera and shorting JDS Uniphase. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Smith does not own (nor is he short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 591 out of more than 170,000 members. 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.