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.

A second bite at the apple ... that isn't Apple
Over the five years I've been recommending (and panning) stocks on CAPS, one of my all-time best recommendations was EMC (NYSE: EMC). I picked the stock in December 2008, then rode it to a 168-percentage-point gain over the next 18 months. And now, according to the smart stock pickers at Oppenheimer, I've got another chance to own it again. Should I bite?

Yesterday, Oppenheimer upgraded EMC to "buy," and set a $32 price target on this $25 stock. According to the analyst, the company's VMware (NYSE: VMW) subsidiary has just signed up 600 new customers for its VNXe line of storage devices, and is poised to grow that number several times over. The company's "Isilon product line" doubled its sales in Q2, with Apple (Nasdaq: AAPL) itself being a big buyer. Put it all together and Oppenheimer thinks EMC is "well positioned to exceed its ~13% multi-year growth target through 2014."

Let's go to the tape
And Oppenheimer just might be right about that. The analyst currently sports a 100% accuracy record in active computers and peripherals stocks, including multibagger profits on Apple and Netezza , and a respectable 62% gain on Teradata.


Oppenheimer Rating

CAPS Rating
(out of 5)

Oppenheimer's Picks Beating S&P by

Apple Outperform *** 273 points
Netezza Outperform ***** 172 points
Teradata Outperform *** 62 points

It hasn't done as well with EMC -- joining the party a bit late in 2010 -- but Oppenheimer still managed to eke out a small "beat" over the S&P 500's performance on its last EMC recommendation. Call me an optimist, call me a Fool, but I think Oppenheimer is going to do much better this time around.

EMC: Buy the numbers
Just take a look at the numbers. On the surface, EMC looks a bit pricey at 28 times earnings. If you compare it to rivals in the storage space like IBM (NYSE: IBM) or Hewlett-Packard (NYSE: HPQ), selling for 14.7 and 8.6 times earnings, respectively, I can see why EMC's valuation might be a bit off-putting. But dig a little deeper, and you'll find that EMC actually generates quite a bit more free cash flow than it reports as "earnings." Over the past 12 months, in fact, it rang up $3.65 billion in FCF, versus a mere $2.1 billion in reported net income.

Foolish takeaway
What that means is that while EMC looks like a 28 P/E stock, it's probably more accurate to think of it as a 14.5-times-FCF stock -- that costs barely half what it seems to. With most analysts on Wall Street predicting 16% long-term growth out of the company, EMC looks cheap.