Wall Street's Buy List

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?

Luckily for Wall Street watchers, the Internet brings us MSN Money's list of which companies the institutions are buying. True, we should be as skeptical of Wall Street's actions as we are of its words. But when the 100,000-plus lay and professional investors on Motley Fool CAPS agree with Wall Street's opinions, it just might be time for some buying.

Here's the latest edition of Wall Street's Buy List, alongside our investors' opinions of the companies involved:

Wall Street vs. Main Street
Main Street takes one look at Wall Street's fave-five this week and wonders aloud: "What are you people thinking?" With just a single exception, every stock on Wall Street's buy list gets roundly panned in the CAPS community. The winner in today's runoff? Communications-chip maker Broadcom, which has finally put its stock options backdating scandal behind it and recently became a beneficiary of Nokia's (NYSE: NOK) switch from using Texas Instruments (NYSE: TXN) chips in its cell phones.

But are these the only reasons to like Broadcom? Hardly. Let's listen in as CAPS players discuss a few more.

The bull case for Broadcom
We'll start with the research and development story. Back in November, CAPS player UCLAHoops observed that Broadcom had "been beaten down because they spent too much on research and development" but predicted that the "spending will pay strong dividends in the long run as broadcom keeps itself innovative."

Fast-forward four months, and CAPS All-Star carlosgg updated us on how things were playing out:

In 2007 Broadcom spent a significant portion of its revenue in R&D, preparing for its foray into the cell phone market. As a result its operating margins suffered and 2007 [earnings per share] went down 42% from 2006. Now that transition is over and Broadcom is ready to capitalize and in the next two years we will see if the company can reap the rewards of its calculated gamble. On October of 2007 they announced their '3G-phone-on-a-chip' IC. ... [I]f their investment does pay off ... I would say a gain of 40-50% from here in the next year or so is very possible.

Fellow player hardytl agrees. Calling Broadcom "[a] good investment short term [that]... holds around the upper and lower ranges between 20 and 40," hardytl predicted last month that Broadcom "should be on its way back up for a while."

And how. One month after hardytl penned that last pitch, Broadcom has already outperformed the market by more than 42 percentage points. However, at 67 times trailing earnings, Broadcom's current price-to-earnings ratio? may pose a risk.

On the other hand, analysts have raised their estimates for this year, and if Broadcom hits the new mark, its current price implies a valuation of less than 19 times 2008 earnings. There may well be more room for this stock to run.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Broadcom -- or even what other CAPS players are saying. We really want to hear your thoughts. Head over to Motley Fool CAPS, and tell us what you think.