Wall Street's Buy List
Actions speak louder than words, as the old saying goes. So why do 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:
(out of 5)
|WPX Energy (NYS: WPX)||$17.21||*****|
|A123 (NAS: AONE)||$1.12||**|
|HomeAway (NAS: AWAY)||$26.03||**|
|GameStop (NYS: GME)||$22.69||**|
Up on Wall Street, the professionals think these stocks are the greatest things since sliced bread. But are they really the best places for you to put your money?
Not everyone is convinced. Take two-star stock GameStop, for example. At less than 10 times earnings, with earnings projected to grow 8% per year over the next five years, and a 2.6% dividend yield, it sure looks cheap. Plus, the company is sitting on a cash pile 655 million bills high. But some Fools just can't shake the feeling that video game retailing (the bricks-and-mortar kind, at least) is dead as dinosaurs.
Or consider HomeAway. The online apartment swapper is consistently profitable and boasts $64 million in trailing free cash flow. It's also expected to grow 33% per year. Theoretically, that should be enough to justify investing in the stock. (The price-to-free-cash-flow ratio works out to less than 29, and the EV/FCF on this one is even cheaper.) Still, with Yahoo! Finance continuing to insist that the stock is unprofitable because of large preferred stock dividend payments, you can understand why investors might be leery.
And A123? Unprofitable, cash-burning, debt-laden A123? The only surprise here is that the company gets any stars at all. If anyone ever deserved a negative CAPS rating, it's this one.
The bull case for WPX Energy
Of course, that makes the situation with WPX Energy all the more curious. Spun off by Williams Cos. (NYS: WMB) last year, it's apparent the parent company wasn't interested in keeping WPX around. So why are CAPS members giving this stock a Fool complement of five CAPS stars?
That's not a rhetorical question. Fact is, while WPX has been public for nearly six months now and has attracted 100% approval ratings from "All-Star" and run-of-the-mill CAPS players alike, only one Fool has yet bothered to write a pitch explaining why the stock is so darn attractive.
(Tip o' the Fool cap, by the way, to CAPS newcomer 2win for said cryptic comment: "buy dip jaskel," a phrase destined to go down in history with "Blue Horseshoe loves Anacott Steel," if WPX ultimately pays off.)
But is there any reason anyone else should follow Wall Street's, and 2win's lead, and invest in WPX? After all, the company's not profitable -- and hasn't been since 2009. Viewed as if it had been an independent company, rather than part of more profitable Williams, the WPX unit would have been considered a cash-burner for the past four years running, during which time it burned through nearly $1.7 billion in negative free cash flow. No wonder Williams couldn't wait to get rid of this business!
Kohlberg Kravis Roberts actually did a deal to buy $306 million worth of WPX's assets earlier this month -- I must admit that I don't see the attraction. Unprofitable, cash-burning businesses are a dime a dozen on Wall Street these days. Why Wall Street likes this one in particular, and why investors seem to be flocking to it well, I just cannot tell.
Do you have a theory? Tell us why you like WPX, onMotley Fool CAPS. 2win's comment is getting lonely over there and could use some company. Or, if you prefer to invest in an energy company that actually knows how to make a buck in this business, read our new Fool report, and discover "The Only Energy Stock You'll Ever Need."
At the time this article was published Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 355 out of more than 180,000 members. The Fool has a disclosure policy.The Motley Fool owns shares of GameStop. Motley Fool newsletter services have recommended buying shares of HomeAway. Motley Fool newsletter services have recommended writing covered calls on GameStop. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.