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 165,000-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 after close of trading on Friday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

These are a few of our favorite things ...
... or rather, a few of Wall Street's favorite things. Turns out, not all Fools share the professionals' enthusiasm for retail stocks. CAPS member chk999 may think Pier 1's a buy because "retailers are recovering," gorehill may insist that Coldwater Creek is "starting do turn the corner," and philnj may believe that the "Pathmark acquisition ... will launch GAP to over $10.00" -- but by and large, most investors remain leery of the stocks. Not a one of them enjoys so much as a middling three-star rating on CAPS.

That's the bad news. The good news is that Wall Street has offered up at least one stock idea that's not tied to trying to sell retail goods to a strapped consumer: ReneSola's the name, and solar wafers' its game. But will it be a winner for investors?

The bull case for ReneSola
CAPS member mwolf12 thinks so: "Based purely on positive estimate revisions." The same bankers who have been buying ReneSola hand over fist, you see, have also increased their expectations for earnings, with three analysts upping their targets over the past 30 days alone.

What's driving these moves? According to princebaron, it's a little thing called performance: "Sales have increased above expectation. Forcast is also better. sun power more efficient and I expect more of an increase in salesas the economy improves."

Put it all together, and All-Star investor nonzerosum thinks "SOL is worth $20 or more today" -- a clean double from today's prices. "SOL is growing furiously. It does have short term liquidity issues (low current ratio) but with its healthy 30% margins and growth rate they will get money. Some risk of dilution for capex, but that's the trade-off when you're growing at these rates."

Time to make the trade?
And maybe nonzerosum's right about that. After all, ReneSola is growing at a quick pace. Analysts estimate the company will produce annual earnings growth of 29% on average over the next five years. That's faster than higher-profile rival wafer-maker LDK Solar (NYSE: LDK) can boast, and way more than Jinko Solar (NYSE: JKS) is expected to produce. Why, even "thin-film" solar specialist First Solar (Nasdaq: FSLR) is only expected to grow a hair better than 25% over the same time period.

On the other hand, buying this growth rate comes at a steep price. While Jinko's mid-teens growth rate can be had for a mere 11 times earnings, LDK costs 16 times, and even First Solar sells for less than 20 times earnings, ReneSola stock will set you back a good ... 89 times earnings to own it.

Even more worrisome to me, though, are nonzerosum's comments on the company's cash flow situation. Taking a closer look at the company's financial statements, I see free cash flow for the past 12 months comes to negative $142 million. That wouldn't necessarily be a problem if the company had cash on hand to fund its breakneck growth pace, but in truth, the contrary is true -- ReneSola carries nearly $580 million in debt, against a cash balance of less than $180 million.

Time to chime in
In a situation like this one, it's a virtual certainty that ReneSola will need to issue more stock -- and soon -- diluting existing investors in the process. Incapable of generating cash by selling product, management will be forced into the investor-unfriendly alternative of selling stock to fund its cash-burning ways.

If and when I'm proven right about that, I expect we'll see this stock's sky-high P/E will drop in a hurry -- not in the way investors want to see, but because the stock price will decline. My advice: Even if you believe in the bull thesis our CAPS members have outlined above, the better time to buy is after this disaster strikes. Not before.

Disagree? Feel free. Click over to Motley Fool CAPS now, and tell me why I'm wrong.