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?

At one point in time, the answer was easy: We didn't know what the bankers were up to -- but no longer. Thanks to the folks at finviz.com, it's now easy to keep tabs on what stocks financial institutions are buying and selling. And thanks to the 170,000-plus lay and professional investors on Motley Fool CAPS, we've also got insight into whether these decisions make sense.

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)

Statoil ASA (NYSE: STO  ) $27.67 *****
Sequenom (Nasdaq: SQNM  ) $6.15 ***
Geron (Nasdaq: GERN  ) $5.02 **
Huntington Bancshares (Nasdaq: HBAN  ) $6.65 **
Tesla Motors (NYSE: TSLA  ) $24.95 *

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.

Wall Street vs. Main Street
Up on Wall Street, the professionals think these five stocks are the greatest things since sliced bread. They're ...

  • ... hoping high gasoline prices will boost sales at electric car-maker Tesla.
  • ... betting bad news at rival regional bank Fifth Third (Nasdaq: FITB  ) isn't necessarily bad news for Huntington Bancshares.
  • ... gambling on Geron, and hailing positive preclinical data that suggests its latest stem cell product, GRNCM1, could be useful in aiding recovery from a heart attack.
  • ... and in the nearer term, looking for positive earnings news at genetic tester Sequenom, which reports its Q4 results tomorrow.

Wall Street's absolute favorite stock, though, is one you may never have heard of -- a Norwegian oil giant.

Statoil ASA
Hardly a household name here in the U.S., Statoil stock has nonetheless gained nearly 40% over the past three months, outperforming shares of oil industry peers like ExxonMobil (NYSE: XOM  ) and Chevron as oil prices spike.

It wasn't always that way, though. As CAPS member eksummers620 points out, this company has trailed the S&P over the past year. In fact, if you look back a full year, Exxon shares have gained 28%, and Chevron rose 40%, while Statoil lagged with just an 18% gain. Now, it's closing that gap.

Why? CAPS member bill3442 sees many reasons, including the company's "strong dividend" and "strong currency." This CAPS investor also muses that as a Norwegian player, "Statoil can get contracts in areas of world US companies are not liked." That makes sense. I mean, really, who hates Norwegians?

Yet as strong as the arguments sound in its favor, I still find it hard to love Statoil ASA. The 13 P/E ratio isn't the problem. I know it's higher than what we're asked to pay for a share of Chevron or Conoco, but it's really not that far off from the price-to-earnings ratio at ExxonMobil. My problem with Statoil is that the P/E ratio doesn't really give us a good picture of Statoil's real profitability. Instead, it supersizes that picture by a good 50%.

Over the five-year period from 2004 through 2009, Statoil reported GAAP profits of more than $30 billion -- but its actual free cash flow during this period was less than $20 billion. More recently, the disconnect has gotten even worse. In 2010, Statoil's $6.5 billion apparent "net profit" overstated true free cash flow at the company ($1.7 billion) by four-fold. Valued on that free cash flow, therefore, the company sells not for "13 times earnings," as it appears to, but rather costs more than 50 times its annual free cash flow. Meanwhile, analysts expect long-term earnings growth at the company to plod along at a steady 4% annual pace over the next five years.

Time to chime in
That's just not an attractive valuation proposition to me. Next to Statoil's price tag, even ExxonMobil's price of 20 times free cash flow looks like a bargain! If Wall Street wants to buy Statoil shares, let it -- but Foolish investors should seek their bargains elsewhere.

Disagree? Feel free. If you've got a more optimistic opinion of Statoil ASA, tell us about it here.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 635 out of more than 170,000 members. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 07, 2011, at 12:01 PM, EllenBrandtPhD wrote:

    What professionals are saying - and I agree with them wholeheartedly - is that the gap between WTI and Brent Crude is now structural and long-term.

    That means anyone logical should now be favoring the European Big Oils over the US Big Oils, moreso because this group is both egregiously under-owned by US and Canadian funds and egregiously under-covered by US and Canadian analysts.

    Statoil is also attractive because it had the good sense to spin off its retail operations a few months ago, putting the weakest part of its business under a separate roof, as it were.

    Statoil has arguably the best group of partners in the world, including Lukoil, Sasol, Petrobras, Sinopec, Chesapeake, and lately, Exxon.

    It is the acknowledged world leader in Arctic drilling.

    And it is an important component in the new Nordic ETFs, which are becoming super attractive to conservative money managers.

    It recently raised its dividend, too, and has hinted that it may move from an annual to a twice a year dividend, which would be very well received.

  • Report this Comment On March 07, 2011, at 9:59 PM, Veritas1010 wrote:

    Well spoken, Venerability.

    Statoil's strength lies in many convergent market and political forces at the moment.

    Oils meteoric rise in an inflationary time-period. The limited amount of established (aka - "big oil") corporations that are not only tolerated by a wide swart of international players (in an era of sovereign wealth operations), but genuinely respected for their firm corporate governance and real concern for the economic issues that underpin "enlightened self-interest" e.g., green concerns and advance compliance to these thorny issues.

    Its leadership in arctic drilling was surely a motivator to recently sell 50% interest in 3 North Sea leases to Exxon Mobil. Whom else can one confidently work with that not only possess the technological edge in this rigorous environment via experience, yet also adheres to the highest standards of ecological awareness in an endeavor that is inherently "messy" to the environment no matter who works the production side.

    Now, for the little investor how about adding a firm to your portfolio that is going global - beyond the limited resources of the North Sea, possesses a strong domestic currency (the Norwegian Krona), and a nice yield between 3-4%. And remember while their is a 25% foreign dividend tax to USA residents applied by Norway, the IRS permits $300 individually ($600 joint) tax credit dollar for dollar on a 1040, (beyond that I believe one needs an IRS Form #1116).

    Stocks move up and down for a reason. This is not a company that finds itself "in-play". When viewed critically, STO Sounds like winner to me and Wall Street too.

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