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 150,000-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
The S&P 500 recovered much of its earlier losses last week, but still sits 3.6% below its January high. So should we buy into this rally while the market's still "cheap?"

Wall Street thinks so. And matching actions to words, it's been snapping up shares in each of the five stocks named above. Fools, in contrast, look at this list and... shudder. Fact is, there's only one stock out of the five named above that CAPS members believe will go on to outperform the market.

The bull case for Integrated Silicon Solution 
The stock: Integrated Silicon Solution. Yes, Solu-tion. Singular. As in "We're the solution, so forget about Cypress Semiconductor (NYSE:CY), Micron Technology (NASDAQ:MU), and ON Semiconductor (NASDAQ:ONNN). They're all poseurs."

Not all Fools would go so far as saying that, however. For example, CAPS All-Star NeroSagetrade, who introduced us to the stock back in 2007, worries about the: "business becoming so commoditized that they've not differentiated themselves from the competition enough. Give the company some time to change direction and maintain strong profitability," though, and NeroSagetrade thinks ISS could double.

Fellow CAPS member Bogey02 agrees, arguing that: "Historic boom and bust cycles, 5projected % gdp growth, combined with aggregate need to increase productivity in light of increased hiring" will all work to ISS's benefit. Moreover, Bogey02 sees ISS as: "relatively cheap relative to peers ... with little downside risk."

And I have to tell you, folks -- I don't disagree. While I'm no semiconductor expert, when I look at ISS's numbers, they do look awfully cheap to me.

Buy the numbers
Not the headline numbers, mind you. Many investors will look at ISSI, see a stock that's more than quintupled in price over the last 12 months, and walk away. After all, at 33 times trailing earnings, an investor's first impression of ISSI has to be that the stock looks a little pricey. (I mean, Intel (NASDAQ:INTC) only sells for 26 times earnings -- and we've actually heard of that stock.) But if you look a little deeper into the company's books, I think you'll like what you see here at ISS.

For example, free cash flow for the past 12 months came to $22.5 million. Applied to the company's $202 million market cap, that makes for less than a 10x multiple to cash earnings -- and this is before you even consider the effect of ISSI's $84.3 million in net cash on the balance sheet. Factor that into the equation, and what we're really looking at here is an enterprise valued at less than six times its cash earnings power. Wow.

Foolish takeaway
To me, there's no question that ISSI is an undervalued stock -- or that Wall Street's right to be buying it. My advice: Just because you missed out on the five-bagger that this stock was one year ago, doesn't mean you have to miss out on a stock that is still amazingly cheap.

The past may be history, but this stock still has a future.

(Disagree? Feel free. If you've got a contrary opinion of Integrated Silicon Solution, here's your chance to tell us about it.) 

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