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 170,000-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	Recent Price	CAPS Rating (out of 5)
Exelixis  (Nasdaq: EXEL  )	$3.77	*****
Dynegy (NYSE: DYN  )	$5.05	****
PotashCorp (NYSE: POT  )	$148.84	****
Sycamore Networks (Nasdaq: SCMR  )	$30.07	***

Companies are selected from the "Institutional Ownership Up Last Month" list published on MSN Money after close of trading on Friday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

M&A fever
Arbitrage fever has taken over the Street. Hoping to profit from the difference between prices today, and what they might be tomorrow (if an acquisition goes through), Wall Street is gobbling up shares of Dynegy (due to get taken private by Blackstone, in a three-way deal with NRG Energy and PotashCorp (the subject of a BHP (NYSE: BHP  ) bid). Sycamore, the subject of continual M&A rumination, rooted in the attraction of its large cash holdings to a would-be acquirer, also seems to have piqued Wall Street's interest.

But ... what's the deal with Exelixis? Sure, insiders are snapping up the shares. But no corporate acquirers have offered to buy Exelixis -- at least, no one we know of. How is it that this stock came to be both a Wall Street favorite, and the top-rated stock on today's list?

Let's find out.

The bull case for Exelixis
Reasons to be skeptical of Exelixis abound, beginning with GlaxoSmithKline's (NYSE: GSK  ) demurral on developing a cancer drug in 2007, and running through Bristol-Myers Squibb's (NYSE: BMY  ) bailout earlier this year. Yet CAPS member morgullord still believes that: "Unless all the drugs fail this stock will out perform the market, just the fact that it is a good position (contracts with other large companies should encourage buying in the short term as well.)"

And regardless of the business's potential, raweeks thinks you can make money on the stock -- in fact, insists he has made "tens of thousands of dollars buying low and selling high as well as the short sell possibilities that can make money on the downside as well. The potential to make money several ways makes this stock very attractive to me."

And let's not forget -- while CAPS All-Star jpetersen1 admits the stock is a "risky gamble," there's still all that "insider buying" to consider. Within Exelixis, in-the-know insiders have increased their holdings by more than 15% in aggregate over the past six months. Presumably, Exelixis officers aren't buying their own company's shares in hopes of losing money ...

Follow the money
But should you follow their lead? It depends. If it's a buyout you're looking for, I have to admit that the stock looks pretty cheap for a would-be acquirer. Exelixis carries little debt and sells for less than 2.2 times sales -- a cheaper valuation than either Glaxo or Bristol-Myers carries. Plus, in contrast to many R&D shops out there, Exelixis actually has revenues to value -- nearly $190 million over the past 12 months.

True, the company is not yet earning any profit on its sales. True, too, it's not expected to earn anything next year. But it only takes one blockbuster wonder-drug to change that in a hurry.

Time to chime in
Personally, I'm the kind of investor who likes to invest in companies after they've proven they can earn a profit -- but that's just me. Other investors prefer gambling on an unknown. So... which kind of Fool are you? Do you see a future for Exelixis, on its own or in the pocket of a corporate acquirer? Or are you content to leave this particular "opportunity" to mature awhile longer, before buying in?

Click over to Motley Fool CAPS now, and tell us what you think.