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:

Company	Recent Price	CAPS Rating  (out of 5)
ARMOUR Residential REIT (NYSE: ARR  )	$6.75	****
Discovery Labs (Nasdaq: DSCO  )	$2.38	***
Cheniere Energy (AMEX: LNG  )	$13.82	***
A123 Systems (Nasdaq: AONE  )	$0.88	**
MannKind (Nasdaq: MNKD  )	$1.60	**

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.

Up on Wall Street, the professionals think these stocks are the greatest things since sliced bread. But are they really the best places for you to put your money?

Not all Fools are convinced. For example, CAPS members rate MannKind a subpar two stars, and maybe for good reason. The company has never earned a profit. It's $494 million in debt with a cash balance of $57 million (at last report), but an annual rate of cash burn in excess of $130 million. Even if inhaled diabetes treatment Afrezza is eventually approved, MannKind must go even deeper in hock -- or issue more dilutive shares -- if it's to remain solvent.

A123's situation looks even more dire. The company just reported that its first-quarter loss was more than twice what it lost a year ago. Deeply in debt and burning cash, A123 included a "going concern" warning in its recent 10-Q filing, alerting investors to the risk that if it is unable to convince someone to buy it soon, the company may have to shut down.

Cheniere Energy, the former liquefied-natural-gas-importer-turned-exporter, lost 21% of its market cap last week despite bullish prognoses for the nat gas market after a (small) rebound in nat gas prices. The rebound bodes well for the stock, but concerns remain as to whether Cheniere -- $2.2 billion in net debt and, thanks to cash burn, getting worse by the day -- will be around to benefit from the completion of its export facility in, hopefully, 2015.

In contrast, cash burn is one thing Discovery Labs needn't worry about, at least not right away. The biotech start-up is burning through plenty of money, but with $54 million in the bank and essentially no debt, Discovery won't need to raise new capital for a couple more years given its current annualized burn rate of $22 million. It's still a risky investment as the company launches its newly approved respiratory death syndrome drug for premature infants, Surfaxin, after multiple FDA rejections. After several high-profile drug debuts failed to gain market traction in 2011, it isn't totally surprising that Discovery remains stuck at just three CAPS stars.

The bull case for ARMOUR Residential REIT
There is one stock on this week's list, however, that scores a bit higher. Four-star-rated ARMOUR Residential REIT enjoys widespread support on CAPS, with 138 out of 146 investors polled rating the stock an outperform.

CAPS member ewamlb thinks the Fed's promise to keep interest rates low rates for three more years gives ARMOUR access to cheap capital for its mortgage investments. And longer term, durango58 argues that "exposure to adjustable rate mortgages will help them weather interest rate increases in the future."

In the meantime, CAPS member jareda thinks ARMOUR's "healthy monthly dividend" is "a good choice for these volatile times." And it's easy to see why jareda would think that, and why others would agree. After all, even at a P/E ratio of 12.7 (which for a 2% grower like ARMOUR, would ordinarily seem a bit steep), ARMOUR looks like a good value based on its 17.7% dividend yield.

Do be aware, though, that this is not an investment without risk. Attractive as its dividend is, ARMOUR has to pay out 363% of annual earnings to maintain the dividend.

Let me repeat that: ARMOUR is paying its shareholders more than three and a half times as much as it's making itself. For a company with a fat bank account, that can afford to pay out cash today in the sure knowledge its profits will improve later on, that might not be a problem. For a company like ARMOUR, though, that's already leveraged up 9-to-1, it's a potentially dangerous game to play.

Foolish takeaway
Sooner rather than later, I expect ARMOUR's dividend to come down -- and when it does, I suspect investors will sour on ARMOUR Residential REIT. If you're seeking strong, steady dividend income, you're probably better advised to leave this REIT alone, and buy instead one of the "9 Rock-Solid Dividend Stocks" profiled in our recent report. Read it here for free.