Wall Street's Buy List

If actions speak louder than words, 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 120,000-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:

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
Wall Street loves these stocks, but Main Street's views are all over the map. For example, CAPS members take a dim view of Parkervision and think Green Mountain Coffee tastes funny. In contrast, they're down on one knee for The Knot, and ready to -- um, prepare a sacrifice? -- for Astec.

OK, that last play on words was a bit of a stretch. Astec has nothing to do with Mesoamerican sun gods, and lots to do with ... asphalt. Astec's stock in trade is construction -- road-building and utilities work, mainly -- a business in which it competes with giants such as Caterpillar (NYSE:CAT) and Chicago Bridge & Iron (NYSE:CBI). Fearless of the competition, Wall Street and Main Street seem to be betting that this little Tennessee-based construction company will benefit mightily from an Obama administration. Are they right? Let's find out as we review:

The bull case for Astec Industries 
Starting off simple, Tinkhamtown sums up the bull thesis in just a couple of sentences: "Should benefit from Dems trying to spend their way out of recession in the short term. Nice little company that will benefit from global infrastructure build out in the long term."

CAPS All-Star cyncoot agrees with Tinkhamtown on the major thesis and points out additionally that Astec is "way undervalued." Our CAPS member continues:

No debt. Lots of cash. Infrastructure build-out likely as a stimulus package.

But our favorite pitch by far comes from the Fool's own TMFEldrehad, writing in his capacity as "EldrehadsPicks" in this pitch from last May:

From the several year long trend of increasing revenue, net income, and margin expansion to the pristine balance sheet, nearly every indication is that Astec is a well-managed company that has a history of delivering solid results to shareholders. Yes, asphalt, as well as Astec's other businesses, are pretty boring, but given the worldwide appetite for increasing amounts of basic infrastructure I believe that there is plenty of room for continued robust growth into the foreseeable future. Add in an attractive valuation even by what I consider to be conservative assumptions, and it's not hard to see Astec as having a strong chance of paving the way toward outperforming the S&P over the next 5 years.

Well put, Eldrehad.

Now, let's examine a few of those assertions more closely. How pristine is pristine? Astec has a cool $30 million in the bank, and as CAPS' cyncoot noted, it carries not a penny of debt. As growth goes, the company has put together a five-year-long record of 58% annual earnings growth. Meanwhile, even as analysts posit a decline in the coming year, for the long term, they see the stock growing at about a 14% clip. At a mere price-to-earnings ratio of 10, you have to admit that sounds pretty good.

Yet I disagree with TMFEldrehad and our other pro-Astec pitchers on this one. As smooth as Astec looks on the surface, I don't see much of a foundation under this stock.

My problem is that there's insufficient free cash flow backing up its apparently strong "accounting profit." It's been five years since Astec last generated free cash flow superior to its net earnings, as calculated according to GAAP. At last report, the company's supposed $66 million in trailing profit was undermined by a record of actually burning more than $6 million in cash over the same period.

Time to chime in
I see a lot to like about Astec. It's growing like gangbusters, it's earning strong profits (at least as calculated under GAAP), and it boasts an enviable return on its invested capital. But so help me, I remain a "show me the money" guy to the core. This is simply not the kind of business I want to own.

But hey, that's just me. If you have a different take on Astec Industries, feel free to disagree. Click on over to Motley Fool CAPS, and make your case.

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