This Just In: More Upgrades and Downgrades

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...
Historically speaking, Barclays Capital hasn't always been the best analyst out there in stock-land. Across the length and breadth of the markets, Barclays actually gets slightly more of its picks wrong than it does right. But there's one thing Barclays does really well, and that's picking gold-mining stocks (to sell).

Over the past few years, Barclays has panned everyone from Kinross Gold (KGC +3.77%) to Barrick (ABX +3.47%) to Newmont Mining (NEM +4.82%) -- and it's been right every time it told investors to sell these stocks.

Today, the analyst returned to the industry with a series of new recommendations, resuming coverage of Kinross and Barrick with "equal weight" (read: "hold") ratings and telling investors there's no "buy" in IAMGOLD (NYSE: IAG), either. Two gold stocks the analyst does like, however, are Yamana Gold (AUY +0.00%) and the previously panned Newmont Mining.

Wonder why? So do I. Let's take a look.

Source: finviz.com. *Currently unprofitable.

Valuation matters
Right off the bat, what jumps out from these numbers is the high valuations of Barclays' favorite gold stocks when compared with the companies it favors less. Aside from unprofitable Kinross, Yamana and Newmont both carry P/E ratios much higher those of (unrecommended) rivals IAMGOLD and Barrick. On the other hand, they also sport two of the fastest growth rates in the industry -- growth rates that are expected to help drive the P/E ratios at both Yamana and Newmont down to more typical levels for the industry as early as next year -- and could help boost profits even further in the years to come.

Granted, if you look at these companies from a pure PEG perspective, none of the five sports a trailing P/E ratio low enough, or a growth rate high enough, to justify a purchase by PEG investors. But what if we look at things from the angle favored by many mining specialists? What if we focus not on what the companies are earning today, but on the proven and probable reserves of gold available to mine (and profit from) tomorrow?

Reserves data from S&P Capital IQ. Gold prices from goldprice.org.

Now, it's important not to get too excited by numbers like these or think that gold is just lying around in streambeds for the taking these days; it costs money to find, mine, and refine. You can't just say that IAMGOLD, for example, is selling for 20% of what it's worth, and therefore it's a buy. Getting to that gold and getting it refined and in the market costs money. This is why even committed gold bugs need to keep an eye on P/E ratios to ensure the companies they're buying are able to make a profit off of all the gold they own.

Even so, viewed from the perspective of proven and probable reserves that are recoverable at an acceptable cost, it appears there's one clear winner in this slate of gold picks: Yamana Gold.

Foolish takeaway
Boasting the greatest gold reserves of the major miners named above, as well as the lowest market cap as a percentage of these reserves, Yamana looks like the obvious place for value investors to start digging around for value -- the best bet for finding a bargain in the industry.

Personally, I still find the company's P/E ratio too high for comfort and its growth rate too slow to justify a buy. But Yamana's ample reserves of gold available for mining (and the fact that Yamana is pretty consistently free-cash-flow-positive in its operations, to boot) suggest to me that of the two picks Barclays made today, this one has the most promise.