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'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst...
Just after close of trading yesterday, small-cap investment banker Thomas Weisel decided to run with the big dogs, and took a bite out of EMC (NYSE:EMC). The analyst marked down EMC to "market weight," citing channel "checks and recent industry trends" that:

  • Showed that EMC's share of the external networked storage market topped out at 26% last year and is now on the wane.
  • Predicted faster-than-expected (7% to 10%) declines in industry purchases of storage hardware in the first half of the year.

Between overall industry malaise and a loss of advantages derived from holding dominant market share, EMC's gross margins will contract, Weisel believes, as much as 150 basis points by 2010. But is that in and of itself reason to avoid the stock?

Let's go to the tape
I'm not so sure. I mean, maybe Weisel knows what it's talking about -- but I have to say that if it is some kind of genius on IT stocks, the analyst does a good job of hiding it.

Over on CAPS, where we've tracked every recommendation Weisel has made public for the past two years, we've got this analyst pegged for about 40% accuracy on its picks. Before today, of the half-dozen picks it's reported to in 2009, only two are beating the market, while four more are underwater:


Weisel says:

CAPS Rating
(out of 5)

Weisel's Pick Lagging S&P By:

JC Penney (NYSE:JCP)



13 points

Central European Media



14 points

Hewlett-Packard (NYSE:HPQ)



4 points

BMC Software



2 points

With Weisel guessing three times wrong for every two times it guesses right -- and underperforming the rest of the market by more than five percentage points per pick, I might add -- you'll understand if I went into this analysis today feeling pretty confident that Weisel would be proven wrong. And after digging into the nitty-gritty of the analyst's reasoning, I'm sure of it.

The wit and wisdom of Jack Welch
Consider: Of the four companies Weisel named as stealing share from EMC this year -- Compellent, 3Par, Dell (NASDAQ:DELL), and NetApp (NASDAQ:NTAP) -- the first two are operating at a loss; Dell and NetApp get mid-single-digit operating margins. And EMC? It's earning nearly 13 cents of operating profit on every revenue dollar, or not quite twice what its next-best competitor (NetApp) makes.

When I see a wide disparity in profit margins like this one, it reminds me of something that former General Electric (NYSE:GE) Chairman Jack Welch used to say: "When you're No. 4 or 5 in a market, when No. 1 sneezes, you get pneumonia. When you're No. 1, you control your destiny. The No. 4s keep merging; they have difficult times."

Now, whether EMC is "No. 1" in this market is open to debate. Define "the market" as external disk storage, and EMC leads in market share; define it as total disk storage, and Hewlett-Packard pulls ahead. With regard to profitability, it's beyond question that IBM (NYSE:IBM) remains top dog.

One thing is clear, however -- whoever's on top, it's not any of the four companies Weisel named as its usual suspects. Does Weisel seriously think that these guys pose a long-term competitive threat to EMC? Should there ever be a need to, EMC can cut its own margins, and drive these four guys into the ground.

As far as the stock price goes ... oh, just forget it. I've explained so often already that EMC is cheap, that even I'm getting tired of hearing myself say it. Let me just point out that the firm generated $2.6 billion in free cash flow last year, and leave it at that.

Foolish takeaway
Summing up then: Weisel overestimates the competitive threat to EMC. Meanwhile, the stock's still sitting here, cheap as it's been for months, just waiting for investors to realize what a good deal they're getting. I'm almost sorry Weisel will be missing out.