Dominant in Internet tech, priced at just 12 times earnings, and paying a dividend of nearly 4%, Cisco Systems (NASDAQ:CSCO) looks like an obvious buy. So why doesn't Goldman Sachs love it?

This morning, analysts at Goldman Sachs announced they're removing Cisco stock from their "conviction buy" list ahead of the company's fiscal Q2 earnings report Tuesday. That seems a strange call. After all, analysts are only looking for the company to earn $0.54 for the quarter, which seems an easy goal to reach -- Cisco only earned $0.53 in last year's Q2, and penny-a-share growth shouldn't be all that hard to achieve.

And yet, as we examine the ratings moves on Wall Street this morning, it becomes clear: These guys have no idea what to do with Cisco.

The ratings
Monday was a very mixed day for analyst opinions on Cisco. Reviewing just a handful of the opinions published on StreetInsider.com, we find:

  • Australian analyst Macquarie upgrading the stock (but only to neutral).
  • Baird warning that surveys of Cisco partners show a risk of "weakness" in this year's revenues and earnings, causing Baird to cut its price target to $30 a share.
  • Jefferies predicting Cisco will hit the modest targets Wall Street set for it this quarter, but warning that Cisco might "guide down" on this year's second half -- and reiterating a price target $4 below Baird's, at $26.
  • And finally Goldman -- downgrading from conviction buy to just buy, and cutting its most-optimistic price target to $32.

So what's an investor to do now?

Let's go to the tape
I'll tell you what I do when meeting mixed signals like these on Wall Street. The first place I go after hearing that an analyst -- any analyst -- has announced an opinion on a stock, is head over to Motley Fool CAPS and check out its record. Because if an analyst doesn't have a good record of giving good advice, I see little reason to pay attention to its advice at all.

So what does Motley Fool CAPS have to say about these analysts and their records? Let's take a look:

  • Macquarie has a record of 50% accuracy on its recommendations -- exactly as accurate as a coin flip -- and ranks in the top 70% of analysts we track.
  • Baird scores much worse (43%) for accuracy, and tanks only in the top half of investors we track.
  • Jefferies scores best of all. It only scores 46% for accuracy on its picks, but the ones it gets right perform so well (beating the market by eight percentage points on average) that overall, Jefferies ranks in the top 15% of CAPS-tracked investors.
  • Goldman Sachs, on the other hand -- the analyst with the best price target on Cisco -- has the worst record of the bunch: 44% accuracy, a record of recommending stocks that underperform the market overall, and a rank in the bottom 20% of investors we track.

So as you can see, these analysts who have opinions all over the map on Cisco, also have records all over the map. Judging from past performance, though, Jefferies is the analyst with the best record.

What to do now
For now -- do nothing. Here's why:

According to Jefferies, Cisco stock is cheap. The company is likely to warn about "the difficult macro environment" when it reports Wednesday, and lower guidance for the rest of this year. But Cisco shares, says Jefferies, currently sell "at their absolute lows in terms of the multiple investors have been willing to pay for Cisco over the past 3 years."

Thinking strategically, this suggests that Wall Street could well overreact to Wednesday's news, and sell off the stock on lowered guidance. That would be a mistake -- but a mistake that you can take advantage of.

Consider: With $9.6 billion in trailing earnings, and $11.8 billion in trailing free cash flow, Cisco's already generating 23% more cash profit than it's allowed to report as "net income" under GAAP. Its price-to-free-cash-flow ratio (9.7) is already 19% cheaper than its P/E ratio (12). And if you back out the company's net cash position, the enterprise value-to-free-cash-flow ratio on this stock is a low, low 6.9.

Cisco's 3.7% dividend yield alone justifies half of that EV/FCF ratio. If the stock can eke out anything better than 3% growth in profits over the next few years, the stock should be a bargain. And according to data from S&P Global Market Intelligence (the company formerly known as S&P Capital IQ), most analysts still see Cisco growing earnings not at 3%, but at more than 5%.

Long story short: No matter how bad the guidance this week, in any business environment short of the Apocalypse, Cisco stock is cheap. If everyone else starts selling on Wednesday, the smarter move may be to start buying.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 241 out of more than 75,000 rated members.

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