This Just In: 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." 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 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.

And speaking of the best …
Do you invest in solar stocks? Do you follow Oppenheimer & Co's advice in this industry? If your answer to the first question is "yes," then your answer to the second should be "yes" as well, because when it comes to picking solar winners, there are few analysts with a better record in the industry than Oppenheimer. 

Over the years, we here at CAPS have watched in awe as Oppenheimer simply dominated the alternative energy sphere. There's the company's famously successful investment in Cree, of course. But it's also picked winner after winner in the solar space (with nary a bad bet placed):

Cash out, and cash in
And now it looks like there's more of the same in store for investors. This morning, Oppenheimer offered its clients a fresh batch of three solar recommendations. I'm paraphrasing here, but in essence, Oppy's advice goes like this:

• Stop selling Suntech (NYSE: STP).
• Stop buying Canadian Solar (Nasdaq: CSIQ).
• Take your winnings from your Suntech short and your Canadian long -- and invest it all in Yingli Green Energy (NYSE: YGE).

According to Oppenheimer, you see, disappointing gross margins at Canadian Solar have weighed the stock down. So if you've profited from Canadian's rise (as Oppenheimer has done -- it's beating the market by 16 points on the pick), then now's the time to "declare victory and go home" on that one.

Conversely, after lagging the market by 36 percentage points over the past year, Oppenheimer thinks the clouds are clearing away for Suntech. But Oppy waxes most optimistic over Yingli Green Energy.

Time for Yingli to shine
Many solar investors have been frightened off by the steep decline in polysilicon prices (which Oppenheimer admits could drop another 15%-20% in 2010). Yet according to the analyst, Yingli's "high gross margins" (Oppy's guessing 30% in H1 2010) and "aggressive stance on average sale price" position Yingli as perhaps the best solar company on the market today.

Incidentally, this position mirrors the one that fellow analyst Auriga advocated just a couple of weeks ago. Not only does Yingli have an avowed intention to underprice rivals and grab market share where it can, it also has the low cost of production that gives it room to maneuver.

And yet …
Fools, I'm not going to be so bold as to say Oppenheimer's dead wrong with this analysis. I can see how Yingli's 12.5 forward P/E ratio, and 12.6% forward growth estimates could encourage investors to buy this stock.

That said, I'm more than a little concerned with the dramatic (and continuing) drops in average selling price in this sector. And the threat of imminent subsidy cuts by large solar customers like Germany, Spain, and Italy add further concern. And most important of all, I see Yingli's inability to generate positive free cash flow from its business -- declarations of positive "GAAP earnings" notwithstanding -- as truly worrisome.

Foolish final point
To my mind, the smart way to invest in this sector -- if you're so bold as to invest in it at all -- is to stick with the very few companies that have demonstrated an ability to fund their operations from ongoing cash flow. Solarfun is one. First Solar (Nasdaq: FSLR) is another. Sure, Oppenheimer may be right when it gambles that Yingli will survive to join this elite and exclusive club.

But make no mistake: It's still a gamble.

Plus, Yingli has already nearly doubled in price over the past year. Is there such a thing as a growth stock selling for an attractive price? There is. There are. They're here.