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?
Once, we didn't know what the bankers were up to. Now, thanks to the folks at finviz.com, it's easy to keep tabs on which stocks financial institutions buy and sell. The 170,000-plus lay and professional investors on Motley Fool CAPS give us further 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)
|
| Berkshire Hathaway (NYSE: BRK-A ) |
$121,266.00 |
**** |
| Silicon Graphics (Nasdaq: SGI ) |
$18.67 |
*** |
| KV Pharmaceutical (NYSE: KV-A ) |
$4.16 |
*** |
| China North East Petroleum (AMEX: NEP ) |
$4.27 |
*** |
| China Shen Zhou Mining (AMEX: SHZ ) |
$6.26 |
* |
Companies are selected from screen results using Finviz.com. 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. But there's a big difference between artisanal Asiago-whole wheat and plain old Wonder Bread. Over the past month, the Street has been …
- Ignoring the warning signs at Silicon Graphics and KV Pharma, and buying into weakness.
- Whistling past the graveyard at China NEP -- subject of one of a number of short-attack research reports that have hit several Chinese stocks lately.
- Hoping for a three-peat of successful rare-earthers like Molycorp (NYSE: MCP ) and Rare Element Resources (AMEX: REE ) by digging into fluorite producer China Shen Zhou Mining -- despite the company's own assertions that it isn't a rare-earth producer at all.
Which by my count adds up to three unprofitable small caps, one suspiciously cheap Chinese oil play -- and Buffett.
The bull case for Berkshire Hathaway
Why buy Buffett today? Well, Berkshire Hathaway's annual meeting is just around the corner. Maybe Wall Street just wants to score tickets to the big show. But as our Foolish CAPS community points out, meeting the Oracle of Omaha in person is just the least of the reasons to buy Berkshire Hathaway.
CAPS All-Star starbucks4ever issues a muted endorsement, writing, "I find BRK-A less overvalued than the overall market."
CAPS member bdlessans provides prudent reasoning:
look into what [Buffett] holds in his portfolio. The major components … are well known large cap companies that have a large market presence. I am a safe investor and I believe these will continue to grow and outperform the S&P
Meanwhile, CAPS member kevhead64 shows blind faith, stating simply, "How can you argue with the King?"
How indeed?
While I'm a fan of Buffett personally, I do have some quibbles with his stock. At more than 15 times earnings, Berkshire Hathaway stock appears priced for far more earnings growth than most analysts think likely. Even as Wall Street buys the stock, it's projecting earnings growth of only 5% to 7% per year for the company.
Meanwhile, Berkshire's GAAP earnings overstate the company's true free cash flow by a small but significant margin. As pricey as Berkshire looks on the surface, it's actually even more expensive underneath.
Foolish final thought
Granted, considering the identity of its CEO, Berkshire's valuation probably deserves some small "Buffett premium." But as he's acknowledged himself, Buffett won't be around forever -- and his hand-picked successor just shot himself in the foot.
Do these negatives outweigh the positives of "investing in Buffett?" Tell us what you think.
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