Actions speak louder than words, as the saying goes. But why does the media focus so much attention on what Wall Street says about companies instead of what it does with them?
Luckily for Wall Street watchers, the Internet brings us MSN Money's list of companies the institutions are buying. True, we should be as skeptical of Wall Street's actions as we are of its words. But when the 83,000-plus lay and professional investors on Motley Fool CAPS agree with Wall Street's opinions, it just might be time for some buying.
Here's the latest edition of Wall Street's Wish List, enhanced with CAPS investors' opinions of the companies involved:
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Currently
Fetching
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CAPS Rating
(5 max)
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Horizon Lines (:HRZ)
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$22.52
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****
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First American Corp. (NYSE:FAF)
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$41.41
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**
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Cosi
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$3.14
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**
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James River Coal
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$14.64
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**
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Rent-A-Center (:RCII)
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$18.52
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**
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Companies are selected from the "Institutional Ownership Up Last Month" list published on MSN Money on the Saturday following close of trading last week. Current pricing also provided by MSN Money on the same date. CAPS ratings from Motley Fool CAPS.
Wall Street vs. Main Street
Main Street seems decidedly unimpressed with Wall Street's favorite stocks this week, panning most of the professionals' picks, and giving only one above-average marks.
And where do Main Street and Wall Street sentiment intersect, you ask? At Horizon Lines, a container shipper, trucker, and logistics operator that counts big-name companies such as Costco (Nasdaq: COST ) , Wal-Mart (NYSE: WMT ) , PepsiCo (NYSE: PEP ) , and Toyota (NYSE: TM ) among its customers. As impressive as its client list is, this is hardly the kind of company you'd expect to be popular in the midst of an economic recession. Why are investors looking past the sunset economy and seeing a future over Horizon? Let's find out.
The bull case for Horizon Lines
One of the great things about CAPS is, at 83,000 investors strong and growing, we're bound to have some members who can offer firsthand experience of the companies they describe.
- We open our pitch parade with last July's stream of consciousness cheer from bigmoneybear1. "[H]orizon line is the old sealand line ... apm mearsk line bought the old sealand line ... I work on the waterfront i'm a longshoremen i load & discharge horizon container ships ever week at apm mearsk ... the world is global horizon container lines is here to stay!"
- CAPS All-Star csmith201 predicted last May that Horizon would "pick up second half of 2007 when more refrigerated units will be ship thus higher rates charged." (Unfortunately, the opposite happened -- at least to the stock price.)
- And yet, fellow CAPS player udflyerz seems to agree with csmith201, calling Horizon a large "shipper in Jones Act markets. Hit hard recently by higher fuel costs. Still, strong cash flows in protected markets."
I can see where udflyerz was coming from when writing that back in November. Horizon did indeed post strong cash flows in each of the last three years. It looks as though when the economy is going great guns, Horizon knows how to make money off it. In 2007, however, this company hit free cash flow levels not seen since 2003.
Horizon now trades for 30 times its trailing free cash flow -- a rich valuation if you ask me. Analysts expect it to grow at less than 23% per year over the next several years. The company also carries a sizeable slug of debt, with precious little offsetting cash on its balance sheet. This could be troublesome in a recession if business dries up and Horizon can't generate free cash flow to make payments.
Put it all together, and I'm afraid I have to break with the CAPS community on this one. Investing in a heavily indebted, cyclical shipper on the brink of a recession -- just as its free cash flow begins to turn down -- is not my idea of a great idea.
Disagree? Feel free. Come on over to CAPS and make your case that Horizon Lines is a buy.
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