5 stocks on Wall Street's buy list
The MSN Money CAPS community can help investors evaluate companies gaining favor among institutional investors.
By Rich Smith, The Motley Fool
Actions speak louder than words, as the saying goes. So why do the media focus more attention on what Wall Street says about companies than on what it does with them?
Luckily for Wall Street watchers, the Internet brings us MSN Money's list of companies the institutions are buying. True, we should be as skeptical of Wall Street's actions as we are of its words. But when the 140,000-plus lay and professional investors on MSN CAPS agree with Wall Street, it just might be time for some buying.
As wisdom-of-the-crowd experiments show, collective estimates are often superior to the estimates of most individuals. The ratings and comments from the CAPS community aren't always right, but there's value in a system that incorporates the knowledge, information and skills of thousands of participants.
Let's look at a handful of companies that recently made Wall Street's buy list, and weigh those decisions against the collective judgment of CAPS investors.
Bucyrus International (BUCY) provides equipment and services to companies that mine gold, coal, iron ore and other minerals. Shares in the South Milwaukee, Wis., company are up 158% in 2009 and trade at a forward price-to-earnings ratio of 15.6. At CAPS, the stock has a four-star rating.
NutriSystem (NTRI) helps people seeking to lose weight. Shares in the Horsham, Pa., company are up 49% in 2009 and trade at a forward price-to-earnings ratio of 19.2. At CAPS, the stock has a three-star rating.
Amazon.com (AMZN) is the world's biggest online retailer, selling everything from auto parts to video games via the Web. Shares in the Seattle company are up 128% year to date and trade at a forward price-to-earnings ratio of 46.8. At CAPS, the stock has a two-star rating.
Liz Claiborne (LIZ) sells women's clothes and accessories. Shares of the New York company are up 104% in 2009 and trade at a forward price-to-earnings ratio of -530. The stock has a two-star rating at CAPS.
Sunrise Senior Living (SRZ) manages about 400 assisted-living communities across the United States. It also has about 40 communities in Canada, the United Kingdom and Germany. Shares in the McLean, Va., company are up 145% this year. At CAPS, the stock has a two-star rating.
The Dow's drop back below 10,000 gives once-shy investors a second bite at the apple this week. Should they take it, or will this fruit keep falling?
Wall Street evidently thinks the "apples" named above will rise above the S&P's ashes -- and they're buying before the bounce.
When CAPS participants survey this field, though, they see just one stock with any real elasticity.
Bucyrus in the spotlight
CAPS All-Star "xiaolifeidao" introduced us to Bucyrus late last year as a "coal mining equipment giant (likely) to continue (its) 20+% growth for the next decade." Why? How? Explains xiaolifeidao: "Coal will continue to be a main electricity energy source in developing countries."
CAPS member "secretbonus" pointed out that the largest developing country, China, runs on coal. "(I)f coal is in demand, Bucyrus is in demand."
Great. But how fast is fast and how low is low? If you'll forgive my paraphrasing of Inigo Montoya from the movie "The Princess Bride": I do not think these words mean what scottcpacma thinks they do.
Sure, at a simple level, Bucyrus does appear to have a low P/E ratio. Tally up the last four quarters' worth of earnings, divide this into the company's market capitalization and you get a P/E of about 12. But this ignores the fact that the company's actual free cash flow significantly lags its GAAP earnings.
Crunching the numbers, I find Bucyrus to have generated only $114 million in free cash over the last year, less than half its reported $297 million in profit. Viewed from this perspective, Bucyrus is trading for about 30 times its actual free cash flow.
Oh, and the fast growth rate? I'm afraid that one doesn't stand up to even a cursory examination. The consensus of the 16 analysts who follow the company is that Bucyrus will grow by about 4% per year over the next five years. Indy 500 material, this stock ain't. In fact, its projected growth lags that of two rivals that I've previously panned -- Caterpillar (CAT) and Joy Global (JOYG).
Now don't get me wrong. I don't disagree with everything my fellow CAPS members have said about Bucyrus. As for the arguments about China, coal and growth, I agree 100%. In fact, I argued much the same last week when discussing the relative merits of investing in Patriot Coal (PCX) vs. Peabody Energy (BTU). I just happen to think that Bucyrus is the wrong way to play the right trend. Simple as that.
But feel free to disagree. If you see something in Bucyrus that I do not -- or if you just want to stick up for the unfairly afflicted Wall Street analysts who are backing the company, then here's your chance. Fire away.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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