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)
|
| CBOE Holdings (Nasdaq: CBOE ) |
$27.78
|
*****
|
| Freeport-McMoRan (NYSE: FCX ) |
$51.78
|
****
|
| Stillwater Mining (NYSE: SWC ) |
$20.72
|
****
|
| Kodiak Oil & Gas (NYSE: KOG ) |
$6.45
|
****
|
| Bank of Ireland (NYSE: IRE ) |
$1.98
|
****
|
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. (And by "bread," I mean money.)
Encouraged by comments from Ireland's Central Bank chairman Tuesday, which suggested European support for the country's banks remains intact, Wall Street is betting Bank of Ireland will survive the current crisis. Professional investors seem similarly optimistic that, whatever happens in Japan, the world will still need oil, copper, and precious metals in years to come. So when commodity stocks sold off en masse Tuesday, the bankers began buying.
And as our star ratings show, CAPS members agree there's a lot to like in all these stocks. But if there's one stock they like better than all the rest, it has to be ...
CBOE Holdings
Why is there such optimism about this Chicago options-trading marketplace? On the surface, the answer seems obvious: Merger activity is heating up among NYSE Euronext (NYSE: NYX ) and Deutsche Borse (which wants to buy it), and Nasdaq OMX (Nasdaq: NDAQ ) , which hopes to woo NYSE away from its Germain suitor. My guess is that it's the potential for snagging a buyout premium that has Wall Street traders gambling on CBOE.
Individual investors, in contrast, appear to have more down-to-earth reasons for buying the stock. For example, CAPS member summitclark forsees "an ever growing increase in options trading, and upcoming launch of further electronic options exchange services as well as product line growth." Likewise, All-Star investor LatePlay says it's the likelihood "that option trading will continue to grow at an even faster pace" that makes CBOE so attractive.
Meanwhile, CAPS member jaymzrex was won over when he noticed the company "buying back shares" late last year. Noting that the company's P/E ratio looked "reasonable with future growth rate" and predicting further growth from "high frequency trading" and greater "options use," jaymzrex has already bagged a nice profit since recommending this stock back in November.
Valuation matters
But are there still more profits in store? Wall Street is gambling that there are, but to me, it looks like a sucker's bet. Consider: Selling for 27x earnings today, CBOE shares already cost two-thirds more than NYSE stock on a P/E basis (and is more than twice as costly as Nasdaq). This despite the fact that NYSE is already an acquisition target, while CBOE is only a potential buyout.
As far as investing in the stock on its own merits goes, here too I see little value at CBOE. 27 times earnings seems too expensive for an expected 15% grower. And even if you value the stock on its free cash flow (which is superior to CBOE's reported earnings), the valuation there is still a good 22.5x FCF.
Foolish takeaway
In short, whether you view CBOE as a potential target for acquisition, or value it as a stand-alone company, either way the company's share price seems too high. Of course, you're free to disagree. In fact, judging from the stock's popularity, I imagine many of you will. So if you have a different opinion of CBOE, and want to express it -- here's your chance. Fire away.
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