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 60,000 lay and professional analysts (newcomers are more than welcome), 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 ... 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 a generally positive reception from Main Street this week. Three earn ratings above average, and the other two are right in the middle. What I'd ordinarily do in this column is examine why investors love the stock that analysts love best -- to see where the Telular analyses connect. But the CAPS pitches on that one look pretty skimpy, and so today we're going to go with the runner-up, which has a much more active following on CAPS.

That's right, Fools. Today we're going to examine ...

The bull case for Sigma Designs
Small-cap semiconductor maker Sigma Designs enjoys wide support on CAPS, with 94% rating it an outperformer, and 92% of our very best investors -- the CAPS All-Stars -- agreeing. Let's tap the collective wisdom of this equity-investing upper crust to find out why they love Sigma so:

• SorrySam introduces us to the company: "Sigma processors are used in internet protocol set up boxes, high definition dvd players, high definition televisions, portable media players ... all products that may become commonplace in the future."
  
• Zahrim agrees: "Do you believe in the future of video on demand? I do, and here's one small-cap that stands to reap severe benefits from that revolution."
  
• Finally, our top-rated Sigma bull, scofflaw1, argues that the company "has locked [Broadcom (Nasdaq: BRCM] and STMicroelectronics (NYSE:STM) out of the IPTV set-top box market. The company has substantial earnings power and virtually no Wall Street coverage."

Now, I'm not sure what the situation was when scofflaw1 penned that last pitch back in October, but it's a bit less than accurate today on one point: a dozen analysts now follow Sigma Designs. That said, it's hard to argue with scofflaw1's other point. With operating margins north of 11%, Sigma is more than twice as profitable as the industry average. Its margins are also twice as robust as those of ST Micro, and nearly four times as large as Broadcom boasts.

And the kicker? In the most recent quarter, Sigma's revenues more than doubled, whilst its two named rivals saw their revenues shrink. That speaks to expanding market share in my view, and supports scofflaw1's argument that the competition has been locked out of the market.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Wall Street's favorite stocks -- or even what our All-Stars are saying. We also want to hear what you know about the company. Is IP TV a fad, and will cathode ray television sets and rabbit ears be making a comeback? Or perhaps there's something about Sigma Designs that we're missing? If so, come on over to CAPS and clue us in.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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. 328 out of more than 60,000 players. The Fool has a disclosure policy.