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 170,000-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:
CAPS Rating(out of 5)
Cheniere Energy (ASE: LNG)
Human Genome Sciences (NAS: HGSI)
OCZ Technology (NAS: OCZ)
Bank of Ireland (NYS: IRE)
Bridgepoint Education (NYS: BPI)
Up on Wall Street, the professionals think these stocks are the greatest things since sliced bread. (And by "bread," I mean money.) But what can investors expect to get for their money, if they follow Wall Street's lead?
A lot of risk ... and maybe one big reward.
Beginning at the bottom, my skepticism toward Cheniere Energy is pretty well documented already. Wall Street may be going whole hog (or whole bull?) for the whole "natural gas revolution" thesis. But I still see here a company with $2.5 billion more debt than cash on its balance sheet. A business that's losing money and burning cash. A speculative investment that has warned investors it needs to spend another $7 billion more (that it doesn't have) in order to complete its nat gas infrastructure projects. Thanks, but no thanks.
Human Genome Sciences
Second verse, same as the first. Technically, Human Genome beat estimates last month, but only by a penny -- and the company still lost $0.41 per share. Sales are rising steadily but, as fellow Fool Brian Orelli pointed out a couple of weeks ago, still fall quite a bit short of the $1 billion "blockbuster" mark. Meanwhile, cash burn is accelerating even faster than sales. In 2011, HG tossed more than $400 million in the furnace, burning cash 43% faster than it had in 2010. On Wall Street, they call this "progress." On Main Street, we call it "doomed."
"OCZ Tech-no-lo-gy" may rhyme, but that's the only positive thing I can say for this solid state drive maker. OCZ's profits are nonexistent, its gross margins anemic, and the company's burning cash like crazy, with $75 million going up in smoke last year. Even with revenues nearly doubling last quarter, management still couldn't find a way to earn a profit from its sales. The Street can keep this one, too.
Bank of Ireland
Seriously, Wall Street? Bank of Ireland? What, you couldn't find a "bank of Greece" to invest in instead? Sheesh. Bank of Ireland hasn't earned an operating profit since 2008, and according to S&P Capital IQ, its return on assets for the past year was a nice, round 0%. I suppose that if it hasn't been liquidated already, you can take this as proof that B of I isn't going away ... but I wouldn't bet on it going anywhere fast, either. Not till Europe gets its sovereign debt problems fixed for good.
The bull case for Bridgepoint Education
After reviewing this sorry cast of characters that Wall Street has been investing in lately, I have to say I didn't have particularly high hopes by the time I got to Bridgepoint Education. But as it turns out, this last stock on the list actually does have potential.
CAPS member MHenage calls Bridgepoint "a free cash flow machine" and loves the fact that the company has amassed "over $250 mil. in net cash and investments."
Virtrad is attracted by the stock's "very low P/E" and "good margins with high ROE & ROA."
And All-Star investor reddingrunner is pleased to report that Bridgepoint is "an adult ed stock that is actually growing and making money!"
At a share price of less than eight times earnings, a price-to-free cash flow ratio that's even cheaper than that, and an enterprise value-to-FCF ratio that's even cheaper than that (thanks to the $287 million cash stash that MHenage mentioned, Bridgepoint's EV/FCF works out to about 5.1), Bridgepoint is a stock priced for zero growth and eventual bankruptcy. But in fact, most analysts who follow the stock see a bright future for Bridgepoint. The consensus, in fact, calls for 18% long-term earnings growth at the company.
Unlike the other stocks on the list up above, Bridgepoint's stock is shockingly cheap. At the risk of sounding irrationally exuberant, I dare say that if Bridgepoint achieves the growth targets set for it, the stock could easily be worth three times what Mr. Market is charging for it today. It's a steal of a deal, and my favorite stock on Wall Street's buy list this week.
I'm so certain this stock will outperform, in fact, that I'm adding it to my CAPS portfolio today. Think I'm wrong? Follow along.
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At the time thisarticle was published The Motley Fool owns shares of Bridgepoint Education, but 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. 390 out of more than 180,000 members.The Fool has adisclosure policy.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
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