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." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our supercomputer 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.

Speaking of the best...
When one of the best-known names in stockpicking picks one of the best-known stocks in tech, we sit up and take notice. So today we cannot help but notice that Goldman Sachs is recommending Nokia (NYSE:NOK) stock again -- and predicting a 27% spike in share price to $9.90.

As reported on this morning, Goldman Sachs has shifted its stance on the erstwhile Lumia maker (Nokia sold its cell phone division to Microsoft (NASDAQ:MSFT)). According to Goldman, while Nokia is no longer a direct player in the cell phone game, that's not necessarily a bad thing.

After all, Nokia stock still boasts:

  • "sustainable" profit margins in its networking equipment business;
  • "upside" from "monetising patents" it still owns in cell phone tech; and
  • at least the "potential" to reap further profits from its HERE maps division, "as in-dash navigation penetration rises and operational gearing drives margin expansion."

Or so says the analysis. But is Goldman Sachs right about all this?

Let's go to the tape
Motley Fool CAPS has been tracking the performance of Goldman Sachs's stock recommendations for more than five straight years. Over this time period, Goldman has made an astounding 1,250 public stock predictions -- and gotten most of them wrong.

That's the bad news, but there's also good. While Goldman is more often wrong than right with its stock picks in general, it still outperforms the market in one area: communications equipment stocks.

Which just happens to be Nokia's home sector:


Goldman Sachs Says:

CAPS says (out of 5 stars possible):

Goldman's Picks Beating (Lagging) S&P By:

Cisco Systems



31 points




6 points




(9 points)

Source: Motley Fool CAPS.

So while far from infallible -- even in telecom -- Goldman Sachs' record by and large does lend an investor some confidence that it knows what it's talking about when it says "buy Nokia stock." What's more, Nokia's own numbers back this up.

Valuation matters
Nokia shares currently sell for about 9 times trailing earnings. Granted, forward earnings estimates suggest an earnings plunge that could push that P/E up past 20 times. But even so, the consensus analyst prediction for Nokia's long-term prospects calls for 18% annual earnings growth over the next five years.

That growth rate alone is almost enough to drop Nokia's forward PEG ratio close to the magic 1.0 level. Now consider further that "P/E" doesn't account for the value of Nokia's cash hoard -- now at $8.9 billion, according to S&P Capital IQ data, weighed against just $3 billion in total debt.

Thus, Nokia's enterprise value is actually only just $23 billion, or 20% cheaper than its market cap suggests at face value. This gives the stock a forward enterprise value-to-earnings ratio closer to 16 than to the 20 forward P/E you see on Yahoo! Finance -- and it makes Nokia's trailing P/E a mere even six.

The upshot for investors
Its mixed record of stockpicking notwithstanding, Goldman Sachs' analysis of Nokia stock is sound: the stock is cheap. In its current incarnation as a telco equipment vendor-cum-IP warehouser, Nokia could be a much better investment than it ever was as a seller of third-string cell phones.

Turns out Goldman Sachs is right about Nokia.