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.

And speaking of the best...
Shares of Cliffs Natural Resources (NYSE: CLF) are sliding ever so slightly today, hurt by a pretty steep drop in enthusiasm at Longbow Research. While maintaining a "buy" rating on the stock, this ace stock picker slashed its price target on Cliffs pretty aggressively this morning -- from a predicted $112 per share all the way down to $84.

What persuaded Longbow to shoot arrows at Cliffs? Well, on Friday the iron miner revealed that both the volume of ore it shipped in Q4, and the price it was able to get for it, fell below expectations. As a result, the company warned that revenue per ton for the year as a whole will take a hit, and probably fall close to the low end of its predicted $135-to-$140-per-ton range. That prompted a downgrade from Credit Suisse Friday and the steep rollback in price target from Longbow this morning.

So, 33% less profit potential than we had bargained for. That's got to be bad news, right?

Let's go to the tape
Perhaps. And yet you may have noticed that Longbow's $84 price target is still about $12 higher than what shares of Cliffs cost today, suggesting there's still 16% profit potential in the stock. And considering that Longbow is one of the best analysts on Wall Street, ranking in the top 2% of investors we track on CAPS, I'd give that suggestion some weight.

After all, Cliffs shares only cost about 5.5 times earnings today, and are of remarkably high quality, backed to the tune of 91% by real free cash flow at the firm. With a 1.5% dividend, and 11% long-term growth projection, I still think these shares are undervalued. Personally, I'd worry more about what's happening further down the supply stream, at companies that use iron ore to manufacture steel. Companies like U.S. Steel (NYSE: X).

This morning, U.S. Steel announced that it's planning to sell its Serbian subsidiary at a loss, and record a charge of as much as $450 million on the sale. While this could be a company-specific, or a country-specific action, when viewed in the context of Cliffs' warning, it suggests demand for steel may not be as robust as some folks on Wall Street have hoped.

Consider: If steel demand was strong, it would stand to reason that demand for its core component -- iron -- would be strong as well. Instead, what we're hearing from Cliffs is the opposite. That bodes ill for primary steel producers like U.S. Steel, AK Steel (NYSE: AKS), and ArcelorMittal (NYSE: MT), each of which was free cash flow-negative at last report.

On the other hand, it's one more reason to seek quality in steelmaking, and take a good, hard look at a minimill operator like Nucor (NYSE: NUE), which, by virtue of manufacturing "new" steel primarily from scrapped "old" steel, is not as dependent on the vagaries of the ore market as its old-guard rivals. Also unlike the competition, Nucor is profitable and free cash flow-positive, and carries a pretty manageable debt load.

Foolish takeaway
Priced at 18 times earnings, boasting 21%-plus projected long-term growth, and paying a whopping 3.3% dividend yield, Nucor still looks best of breed. (And for the record, I've got a winning record on this projection. Check out my write-ups on Nucor -- and more than 200 other companies -- on Motley Fool CAPS.)

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.