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?

Once upon a time, 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 the stocks that financial institutions buy and sell. And the 180,000-plus lay and professional investors on Motley Fool CAPS can lend 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 are selected based on past-three-month changes in institutional ownership, as reported on 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. (And by "bread," I mean money.) They've been …

• Digging through the fertilizer in search of riches at Mosaic.
• Cheering Paramount's plan to dig for even more gold in old waste dumps (which isn't as crazy as it sounds).
• Encouraged by more traditional gold mining efforts at Rubicon Minerals and Brigus Gold.
• And betting Cheniere Energy can bounce back from this month's earnings disappointment.

With commodities prices in general, and gold prices in particular, looking so strong lately, Main Street investors seem to agree with most of these ideas. With the sole exception of Cheniere, our CAPS members assign four- and five-star ratings to all the stocks on Wall Street's wishlist. The one stock they love the most, though, is Mosaic. Let's find out why as we examine …

The bull case for Mosaic
Gold may be the world's prettiest metal, but you still can't eat it. According to CAPS member JEE18, that's key to why Mosaic is a better investment than the gold stocks: "Fertilizer is king to provide food. The world population is at a maximum without more food and water."

All-Star investor alanbluespan agrees that "the unrelenting global demand for grain crops ensures solid long-term support for steadily increasing prices for the phosphate and potash fertilizers produced by Mosaic."

That's the business case for fertilizer in general. As for Mosaic the stock in particular, CAPS member Doulk calls it a "good company" with a "good balance sheet" and an "in demand Product." Doulk adds: "What's not to like?"

Ooh! Ooh! Ooh! Ooh! Mr. Kotter!
I'll tell you what's not to like: the price. And the cash -- or, rather, the lack thereof. You see, Doulk is right that Mosaic is a good company. He's also right about the quality of Mosaic's balance sheet. The company boasts more than $3.9 billion in cash, versus about $830 million in debt -- that's a pretty picture next to, say, rivals PotashCorp (NYSE: POT) or Agrium (NYSE: AGU), both of which carry more debt than cash on their balance sheets.

The problem with Mosaic, in my Foolish opinion, is that it's just not doing a good job of adding cash to that pile -- or at least, not as good a job as we'd like to see. Consider: On the one hand, with $2.5 billion in GAAP net income, Mosaic shares look attractively priced at less than 12 times earnings. However, if you examine the company's cash flow statement, you'll notice that while Mosaic claims to have "earned" $2.5 billion in "net income," it generated less than half that sum in actual free cash flow.

Foolish takeaway
As a result, while Mosaic may boast a sub-12 P/E ratio, its price-to-free cash flow ratio is a much more expensive-looking 24.5. To my Foolish eye, that's a high price to pay for a company that most analysts on Wall Street doubt will grow any faster than 8% per year over the next half-decade.

My advice: If Wall Street wants to overpay for Mosaic -- let 'em. While a fine company in many respects, the stock simply costs too much to reward new investors at today's prices.