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 110,000-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:

Company

Recent Price

CAPS Rating (5 max):

U.S. Global Investors (Nasdaq: GROW  )

$18.10

*****

Clayton Williams Energy  (Nasdaq: CWEI  )

$116.06

***

Cardica

$9.48

***

Ivanhoe Energy  (Nasdaq: IVAN  )

$3.65

***

Tri-Valley Corp (AMEX: TIV  )

$9.15

*

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
For the most part, Main Street shrugs at Wall Street's top picks this week. CAPS players feel basically indifferent to the prospects for three of the five, but fortunately, they only actually hate one of the others. Even better, they love the fifth.

What makes U.S. investors so fond of U.S. Global Investors? The company's name probably doesn't hurt, but surely there's more to it than that. Let's listen in on a few of our All-Star investors as they discuss USGI.

The bull case for U.S. Global Investors
WPThatcher raved about USGI back in April:

This is the hottest mutual fund company out there. Great timing; their funds are focused on precious metals and emerging markets. [Assets under management (AUM)] should balloon.

Great timing for WPThatcher, too. This savvy player has garnered 32 points worth of market outperformance on the pick.

BimcyFinance agreed, opining late in 2007:

With gold and foreign stocks back on the rise, I like owning an asset management company that has the top funds in each of the respective categories. As these areas show solid returns, people will put money into their funds, driving profits of US Global Investors (GROW). Gold will stay strong with the continued weakness of the dollar and I think the risk/reward ratio is attractive here for this stock.

Wrapping up our survey, Turtleread puts some numbers to the optimism over USGI:

Small dividend (.24)... 5 yr. growth at 49.8% ... Gross margin at 76.41% and net margin at 22.01%... Book value per share: $2.35... ROE: 44.7%.

So far, so good. I certainly see why so many people are so optimistic about the stock. And yet, being a numbers guy myself, a few more figures about this stock nag at me. At last report, USGI had $5.5 billion in assets under management. But as a general rule, asset managers sell for somewhere between 1% and 2% of their AUM.

And how much does USGI fetch? Glad you asked. At its current market cap of roughly $270 million, USGI sells for a whopping 5% of AUM. That's higher than Legg Mason (NYSE: LM  ) . More than Blackrock (NYSE: BLK  ) . Why, USGI even eclipses T. Rowe Price's (Nasdaq: TROW  ) , um, price.

Time to chime in
Of course, maybe USGI is worth the premium. (If you think so, you can make your case.) But for my part, I suspect investors are better off avoiding the "familiar" name -- and buying one of the marquee names listed above instead, for a far better price.

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 1,855 out of more than 110,000 players. Legg Mason is an Inside Value recommendation. The Motley Fool owns shares of Legg Mason. The Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2008, at 4:06 AM, florinoch wrote:

    Hey, I checked out the MSN Money list and I can't find anywhere Ivanhoe Energy or Tri-Valley Corp or Clayton Williams Energy. What's up with that?

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