Wall Street's Buy List

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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 140,000-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 (out of 5):
PetroQuest Energy  (NYSE: PQ)	$6.67	*****
GMX Resources  (Nasdaq: GMXR)	$14.69	****
DepoMed  (Nasdaq: DEPO)	$5.61	***
YRC Worldwide	$4.09	**
Gannett Co (NYSE: GCI)	$12.62	**

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.

Two-way Street
Wall Street traders are buying these stocks hand over fist. But it wasn't always so. Just a few months ago, they were selling the top-rated stock on this list.

Why? As CAPS member Tagit wrote back in April, PetroQuest's "credit line [was] tapped out, and they [had] no choice but to pull back." Yet Tagit was convinced that "[j]ust as night follows day, today's decisions will rescue tomorrow's rates of return for the E&Ps … when rig counts are down these guys are drilling in Brazil and have a very sound relationships (with others)."

Tagit therefore advised that we "buy now-cash in later" -- advice that has outperformed the market by nearly 150 percentage points over the last six months. Now that the stock's more than doubled, Wall Street is finally piling back into PetroQuest -- but are they buying at the top?

The bull case for PetroQuest Energy
MikeBobulinski doesn't think so. In July, Mike wrote:"Small explorer/driller should rebound nicely as the economy turns around and energy starts to be in higher demand. With the future pointing towards alternate fuels, natural gas should also become a higher demand item. So these guys should be a reasonable small cap choice."

But how far into the future must we look? All-Star Pennyperson predicts: "When oil rebounds and holds above 75 a BBL-this is a true winner-expect the reward to come in mid 2010 as in double trouble to the good side."

I agree -- to a point. At last report, PetroQuest boasted 172.2 billion cubic feet of proven natural gas reserves. Incidental to its flagship gas business, the company also has about 2.2 million barrels of proven oil reserves -- equivalent to about 13.2 billion cubic feet if converted at the standard industry metric. So call it 185.4 billion cubic feet-equivalent.

Traditionally, natural gas is priced not by "cubic feet," but by the BTUs produced by burning them -- roughly 1030 BTUs per foot cubed. Right now, the spot price on these BTUs is $3.24 per million BTUs. So the value on these reserves works out to:

• 185.4 billion cubic feet
• times 1030
• divided by 1 million
• times $3.24 ...

… which equals $618.7 million. Meanwhile, PetroQuest itself carries an enterprise value of just $589.5 million -- about a 5% discount. While I admit that's a tidy margin of safety, and a much better idea than paying the small premium attached to shares of the United States Natural Gas (NYSE: UNG) exchange-traded fund, I cannot help noticing that there are even better deals to be found in the oil patch.

Take Chesapeake Energy (NYSE: CHK), for example. With 12 trillion cubic feet of gas and equivalent oil reserves to its credit, Chesapeake's assets look to be "worth" $40 billion; yet the company sells for $30.6 billion. Or consider the case of the gas company we looked at last week, Quicksilver Resources (NYSE: KWK), which also sells for substantially less than the value of its assets.

Like I said last week, folks, it doesn't take a rocket scientist to figure this out. If PetroQuest is selling for a discount to its value, it's a buy. But if other producers are selling for even bigger discounts, then they're correspondingly better ways to play the trend. 

Time to chime in
Disagree? Feel free. A lot of investors believe that small caps like PetroQuest beat large caps like Chesapeake hands-down. If you're one of them, we'd love to hear from you.

Click on over to Motley Fool CAPS and make your case.