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 160,000-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 Saturday, following the close of trading last week. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Jobless recovery? What jobless recovery? The Department of Labor reports that U.S. payrolls grew by 162,000 last month (thanks to a little help from short-term 2010 Census hiring). The Dow just skipped merrily past 11,000, and even the devastation wreaked by news of the Goldman Sachs charges wasn't enough to push us back down under. In short, optimism has returned to the markets.

Or not. Sure, Wall Street's gone on a buying spree in response to all this good news. But down here on Main Street, investors are scanning the professionals' shopping list and wondering whether they've lost their minds. I mean, how giddy with optimism must you be to call Overstock a "buy" at 60 times earnings? Or Keryx, with one product in late-stage clinical trials, or Strategic Hotels, with no earnings whatsoever? Plus, analysts have both companies pegged for negative earnings, both in this year and the next.

Fortunately, at least we have one company that Wall Street and Main Street can agree on: TransGlobe Energy. Unfortunately, it's unprofitable -- and it may not be as big a bargain as most investors think.

The bull case for TransGlobe Energy
Ever wished you could own a piece of OPEC, the Organization of Petroleum Exporting Countries? I sure have -- and I suspect that wish explains much of the optimism behind TransGlobe, a U.S.-listed, Canada-based exploration and production company seeking oil in the sands of Egypt and Yemen.

As regards the company's prospects, CAPS member WiseChoice4u2 declares that the "payday is here." TransGlobe recently "hit some gushers" in Egypt. While WiseChoice4u2 "Can't speak to the economics yet," this member does believe that "merger or aquisition may be on the way," finally unlocking the value of a stock that has been range-bound for years.

CAPS All-Star bdescent agrees, praising TransGlobe's "Good balance sheet and location."

And taylormassie says that "TransGlobe knows how to run an oil company and find oil."

There's oil in them thar sands!
From one perspective, at least, I agree. When it comes to producing cash for shareholders, TransGlobe appears to be on the right track. Over the past five years, it has generated an average of $13 million worth of annual free cash flow for its owners. That's not a lot to support the company's $448 million market cap, admittedly, but it's a good start. Plus, CAPS member bdescent is right about the balance sheet. With less than $34 million in net debt, TransGlobe seems well-positioned to survive and thrive in a world dominated by majors like ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and ConocoPhillips (NYSE: COP).

But that doesn't make it a bargain. And it shouldn't win TransGlobe a place in your portfolio.

Traditionally, investors in oil stocks place less weight on a company's reported profits, and more on its potential -- a potential written in shorthand on the company's balance sheet, next to the notation "proven reserves." Here, the bull thesis on TransGlobe stumbles. At last report, TransGlobe only had about 10.8 million barrels of net proven oil reserves. Valued at the going rate of about $83 per barrel, those in-the-ground reserves are worth about $900 million, or a little less than twice the price of the company itself (its enterprise value).

That sounds like a bargain, until you consider that larger, steadier, more survivable rivals carry enterprise values that are even smaller fractions of their reserves' worth: Very roughly, each of Exxon, Chevron, and Conoco boasts proven reserves worth six times as much as their respective enterprise values.

Foolish takeaway
However much of a bargain you may believe TransGlobe to be -- and to be clear, I'm not saying it is not a bargain -- it looks to me like almost any oil major you can name is much less expensive. So either these big companies are vastly undervalued, or TransGlobe is overpriced relative to its peers. Either way you look at it, though, there seems little reason to prefer TransGlobe over the alternatives.

Or so says me. But feel free to disagree.

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

Editor's note: An earlier version of this article indicated no late-stage clinical trials for Keryx. The Fool regrets this error.