Wall Street's Buy List
Actions speak louder than words, as the old saying goes. So why does the media focus so much attention on what Wall Street says about companies, instead of what it does with them?
Once upon a time, we didn't know what the bankers were up to. Now, thanks to the folks at finviz.com, it's easy to keep tabs on the stocks that financial institutions buy and sell. And the 180,000-plus lay and professional investors on Motley Fool CAPS can lend us further insight into whether these decisions make sense.
Here's the latest edition of Wall Street's Buy List, alongside our investors' opinions of the companies involved:
|HollyFrontier Corp. (NYS: HFC)||$22.93||*****|
|E-Commerce China Dangdang (NAS: DANG)||$5.20||*|
|Qihoo 360 (NAS: QIHU)||$19.31||*|
|Zillow (NAS: Z)||$24.77||*|
|Bankrate (NAS: RATE)||$19.43||*|
Wall Street vs. Main Street
Up on Wall Street, the professionals think these five stocks are the greatest things since sliced bread. (And by "bread," I mean money.) In recent weeks, they've been spotted:
- piling back into Bankrate, now that the company's public again ...
- and also hoping for a real estate gold rush at newly public Zillow (initiated at "buy" last week by Canaccord Genuity.)
- ignoring Citron Research's accusations at Qihoo ...
- and going even further -- betting that Dangdang's move into e-books and online apps sales will transform it into the Amazon.com of China.
And on that last one, at least, they may be right. Like Amazon at 100 times earnings, the unprofitable Dangdang already looks horribly overpriced. Perhaps this is why most CAPS members seem to think Wall Street has lost its mind to be buying the stock -- and most of these stocks, in fact. With one-star ratings everywhere you look, it seems Main Street investors aren't quite as enthusiastic about buying money-losing companies as Wall Street is.
That said, there is one stock on the list up above that's both profitable, beloved of individual investors, and crazy cheap to boot: oil refiner HollyFrontier. Let's find out why it's a favorite of Wall Street and Main Street alike, as we dig into...
The bull case for HollyFrontier Corp.
CAPS member JPAKolypse86 argues that refiners like Holly "are a good buy right now, especially if you believe $80 oil is undervalued. If oil ratchets back up to $100-$110 then refiners will be able to profit from greater margins on gasoline."
Yet already, robertshrestha points to how Holly boasts "industry leading profitability" as a reason to buy. "WTI/Brent spread continues to be positive, solid balance sheet, attractive price multiples. What's not to like?!"
elks42 agrees, and likes Holly's "balance sheet and various stats" quite a lot. "The company seems to be in pretty good shape, especially given it's value as far as P/E goes and given that they pay an OK dividend."
And on balance, I agree with our CAPS members. While I'm not convinced high oil prices are necessarily good for Holly (to the contrary, there are times when high oil prices actually hurt refiner margins,) robertshrestha is 100% right about Holly's proven ability to earn superior profit margins regardless of oil price. Right now, for example, the company boasts an 11% operating margin on its products, which is twice what Western Refining (NYS: WNR) manages to squeeze out of a barrel of black gold, and three times the op-margin at Valero (NYS: VLO) .
Similarly, elks42 is right to highlight Holly's strong balance sheet. With $1.7 billion in cash, and only $1.2 billion in debt, Holly's sitting pretty in the cash department, and is considerably better positioned than either Western or Valero.
Foolish final point
If anything, I think our CAPS members may be understating the buy argument here. Consider: At just 3.7 times earnings, and a price-to-free cash flow ratio only a little higher (5.9), Holly today looks to be priced as if investors thought it would only grow in the mid-to-upper single digits going forward. But in fact, the consensus of most analysts is that Holly will post compounded annual earnings growth upward of 34% over the next five years -- twice the average in its industry.
Is that growth estimate optimistic? Almost certainly, it is. But even if Holly grows at only the average rate for its industry, the stock still looks crazy cheap to me. In fact, I'm so convinced the stock offers a superior bargain at today's price that I'll put my reputation on the line, and recommend it publicly on CAPS. Feel free to follow along -- and hold me accountable if I'm wrong.
Looking for more great bargains in the oil patch? Read the Fool's new -- and free! -- report on3 Stocks for $100 Oil.
At the time this article was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 327 out of more than 180,000 members.The Fool has adisclosure policy.The Motley Fool owns shares of Amazon.com and Western Refining.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com and Zillow.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.