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 30,100 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 it's the right thing to do, that should get your attention.

Let's meet today's list of contenders:

Wall Street vs. Main Street
Wall Street's hottest picks get a generally warm reception on Main Street this week, with the majority of the stocks on our list enjoying above-average endorsements on CAPS. But in this column, as in Highlander, in the end there can only be one. Top honors this week go to wireless modem-maker Sierra Wireless, which trounces its rivals with a five-star CAPS rating, and the endorsement of all 32 All-Stars who've taken a look at it.

But does the fact that Wall Street likes it, and our All-Stars love it, make this stock a buy? Let's hear what our players have to say before deciding:

The bull case for Sierra Wireless

• All-Star investor alamobull calls Sierra the "leader in embedded and PCMCIA card type communications with mobile devices."
• cyouakim sees opportunity for the company in a "booming" 3G market, and thinks Sierra is well positioned to profit from this boom thanks to its "strong balance sheet and a strong product line."
• Tophinater agrees, calling this a "Well managed company with a product in very high demand. Its customer base is only getting larger with no threatening competitors in sight," concluding: "How could it not do well?"

Investors who use old standby Yahoo! Finance in researching their buys may be put off by the fact that Sierra has a high trailing P/E (of 53) and no yardstick against which to judge this price reasonable (no analyst estimates whatsoever).

On the one hand, I'd say they're right to worry, in that the firm has run free cash flow-negative in each of its last two fiscal years. Then again, cyouakim correctly points out that the firm's balance sheet is rock solid, with sufficient cash on hand to continue burning it for another three or four years if necessary. (But let's hope it isn't.) As for the lack of earnings estimates, though, I fear that's a bit misleading, and Yahoo! may still be in the midst of the buggy data-problem it's been experiencing over the last couple of weeks. Checking Sierra's stats on the data provider the Fool uses, Capital IQ, a division of Standard & Poor's, I see that far from having no analysts following it, Sierra has 22 analysts -- 16 of which rate it a buy.

Unlike Yahoo!, Capital IQ doesn't give five-year growth estimates, but it does tell us that analysts on average expect this firm to post a $0.91 per-share profit over the next 12 months -- a 90% increase over its trailing-12-month performance.

Time to chime in
Ninety percent per-annum growth over the long term would easily justify the firm's pricey P/E -- but (1) no one's predicting that, and (2) it's a feat even Google would have a tough time achieving. The question investors face is therefore this: How fast can Sierra grow? Fast enough to justify today's price, or not? If you've got an inkling of the answer, come on over to CAPS and fill us in.

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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 No. 1,555 out of more than 31,100 rated investors. The Fool has a disclosure policy.