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 105,000-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.

Stock

Recent Price

CAPS Rating (5 Max):

IXYS (Nasdaq: IXYS  )

$12.17

*****

Progenics Pharmaceuticals  (Nasdaq: PGNX  )

$17.64

***

Inspire Pharmaceuticals (Nasdaq: ISPH  )

$4.90

**

Talbots (NYSE: TLB  )

$11.44

*

abitibibowater (NYSE: ABH  )

$13.28

*

Companies are selected from the "Institutional Ownership Up Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
Main Street takes a dim view of Wall Street's top picks this week. CAPS players flunk three of the five (read more about the most surprising pick), while Progenics earns a passing grade only by the skin of its teeth. Only IXYS -- a maker of semiconductors for power conversion -- comes away unscathed. Let's find out why.

The bull case for IXYS
CAPS All-Star igetmoney2010 leads off with a generic endorsement of the semiconductor sector:

There are circuits in just about everything we use nowadays. Computers, automobiles, phones, and many other devices have their share. We are entering the Computer Age, so putting your faith in stocks like these is a must.

But the world is teeming with semiconductor stocks, right? So why should we buy this one in particular? Player mrwimbledon explained to us last summer that "this chip maker manufactures power chips for wind and solar products. Earnings are up in this sector."

CynO1113 agrees: "Expect solar energy to take off (finally!!) & expect IXYS to as well! As all forms of alternative energy start to see increased usage, there's no where to go but up for this company."

If you place any faith in the analysts' expectations, you'd have to say that IXYS looks to be a no-brainer. The company's price-to-earnings ratio of 17 looks cheap relative to those of more traditional semi plays, such as Intel (Nasdaq: INTC  ) or AMD (NYSE: AMD  ) -- actually, AMD doesn't have a trailing P/E. What's more, the two analysts who track the stock predict that those earnings will grow at an average clip of about 53% per year over the next half-decade. Heck, if IXYS manages just half that rate of growth, the stock's a screaming buy.

Then again, I did mention that only two analysts track the stock, right? That's much fewer than usual in the semi sector, and it means that a bet on IXYS is in large part a bet on the quality of just a couple of guys' opinions. Investing in IXYS also requires that you look past these realities:

  • The company has burned cash in each of the past two years.
  • It's a relatively small player in the semi space.
  • Revenue growth in the most recent quarter was only 7%.

Time to chime in
Of those reservations, it's the lack of free cash flow that will be keeping Yours Fooly away from IXYS. But hey, that's just me. Maybe you know a reason that this stock is worth owning even without that cash. If so, head on over to Motley Fool CAPS, and tell us all about it.

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. Intel is a pick from Inside Value. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's ranked No. 1,526 out of more than 105,000 players. The Fool has a disclosure policy.


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