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 ...
Earlier this week, while discussing divergent ratings issued on Chinese solar play Yingli Green Energy (NYSE:YGE), I made the controversial assertion that the entire solar industry is burning cash, diluting shareholders, and just plain overvalued in general. I argued that rather than gambling on an unprofitable unknown like solar, investors might be better off investing in a very-well-known: ExxonMobil (NYSE:XOM).

Well, as it turns out, Wall Street has just come to the same conclusion. Yesterday, a sell-off in solar sparked by accounting "issues" at Sunpower (NASDAQ:SPWRA) stood in nice contrast to gains posted by Exxon. For this, you might thank the friendly analysts at Barclays Capital who upgraded Exxon stock.

Barclays argues that the global economic slowdown won't keep Exxon from growing 3% in the coming year -- and continuing to grow at close to that rate over the next five years. And while 3% growth sure doesn't sound very exciting, Barclays believes Exxon's "risk/reward ratio is attractive." Is it right?

Survey says ...
Yeah, as a matter of fact, Barclays probably is right about Exxon -- at least if Barclays' record in the oil patch is any indication. Few boast better records.

Since it began reporting ratings through Briefing.com a little over one year ago, Barclays has racked up no fewer than 54 affirmative buy/sell recommendations in the energy industry. What's more, most of them are beating the market:

Will this week's Exxon endorsement perform similarly? A cursory glance at the valuation picture would suggest not:

• Trading for 17.5 times trailing earnings, with a 2.2% dividend and consensus projections of 2% growth (or even the 3% growth Barclays is predicting), the stock looks dreadfully overpriced.
• Add in the fact that Exxon rarely generates free cash flow in excess of its reported earnings, and is currently generating free cash at a level 55% below reported earnings, and chances for outperformance look bleak.

That said, a megacap like Exxon may not perform as traditional PEG analysis would suggest. Historically, this company has managed to maintain an average P/E ratio just north of 18.0 for the past decade, in good times and bad. Right now, the stock's trading below that level.

Foolish takeaway
What all this suggests to me is that Exxon probably doesn't have a whole lot of room to run from here. It'll take a whole lot more than 2%, or 3%, growth to move the needle on a stock this big. That said, Exxon's below-historical-average valuation, its ability to generate positive free cash flow in even the worst of markets, and its respectable dividend yield all add up to one inescapable conclusion: Exxon is a "safe harbor" stock. Even if the rest of the market tanks after its run-up, Exxon should weather the storm.

My advice: If you're looking for wild, lift-your-shirt-up-and-dance-in-the-streets growth -- Exxon's probably not the stock for you. But if you believe, as I do, that the market's "overbought" and primed to sell off, Exxon's a pretty good place to hide out till the carnage has ended and it's safe to start buying again.