Wall Street's Wish List

"Actions speak louder than words."

It's an old saying, with more than a grain of truth to it, I'll warrant. So why is it that when the Wall Street firms merely "initiate coverage" or "upgrade" their ratings on a company, that gets all the news coverage? After all, those are only words, when what really matters is how the big boys act. Luckily for Wall Street watchers, finding out which professionals put their money where their corporate mouthpieces are has become relatively easy in this Internet age of ours. All we have to do is read MSN Money's list of which companies the Street is most actively buying.

But once we've done that, what next? After all, "Monkey see, monkey do" may not make for the soundest of investment strategies. That's where Motley Fool CAPS can help. The Fool's newest venture into the realm of collective intelligence collects ratings from more than 28,000 lay and professional analysts, then overweights the most successful raters' opinions to come up with a "CAPS rating" from one to five stars (five being the best). If Wall Street's buying and the smartest investors in Fooldom say they're right to do so, then that should get your attention.

And so, let's meet today's list of contenders:

Wall Street vs. Main Street
Wall Street's top picks get another mixed welcome on Main Street this week. For the most part, we seem willing to go with the flow, panning just three of Wall Street's favorite stocks, while giving average or above-average ratings to the majority.

Top of the heap this week is GrafTech, a company that works with, well, graphite. Admittedly not the sexiest of industries, but interesting enough to attract the interest of 85 of our CAPS players -- 80 of which like the company. What's got them so high on graphite? Let's find out.

The bull case for GrafTech
I admit it: When someone says "graphite," I ordinarily think "pencils." But it turns out that GrafTech's products are much more wide-ranging, and used in industries from alternative energy (fuel cells) to steel (mini-mills) to semiconductors. Which explains why each CAPS All-Star who favors this company has a different reason for doing so. One calls it an "Alt Energy Play." Another shouts "Hooray for steel!" A third cites the company as having a hand in "fuel cells."  

Our All-Stars aren't feeling especially loquacious about this one, however, providing little more than a couple words per pitch. So for more color on the company, let's move down into the CAPS rank and file:

• Mactalon likes the fact that GrafTech is "growing their income, have a positive return on assets and are keeping some cash in the bank."
• timefordough points out that the firm "has just finished paying off antitrust fines issued from the Dept of Justice. These payments (last one of $5.1 million) have weighed heavily on the eps, which should see an increase just from this relief. There is new competition for electrodes from India and China but GTI has a pretty solid book at least for 2007. Add in the $2 Million grant for fuel cell development and you have two reasons to like it."

Time to chime in
Still, GrafTech has one key "issue." Specifically, analysts expect it will grow profits no faster than 5% per year over the next five years. At that rate, no matter how low the P/E (and at 15, GrafTech's P/E isn't even especially low), it's hard for a stock to reward investors richly. Then again, analysts don't have an especially good record on GrafTech. They've underestimated its earnings in three of the last four quarters. Moreover, their 5% consensus on future growth "feels" conservative, considering that (1) the average projected growth for GrafTech's industry is 14% per year, and (2) GrafTech itself has grown 26% per annum over the last five years.

So what do you think? Is there a disconnect between Wall Street predicting single-digit growth while simultaneously buying the shares hand over fist? Might GrafTech be poised for more growth than expected? Or is this just another value trap -- a stock not especially cheap, and with very little hope of growing into its valuation?

If you've got an opinion, we're all ears. Come on over to CAPS and tell us about it.

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Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 845th out of more than 28,000 raters. The Fool has a disclosure policy.