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:
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.
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.