Wall Street's Buy List

"Actions speak louder than words." There's more than a grain of truth to the old chestnut, I'll warrant. But why does the media focus so much attention on what Wall Street says about companies? After all, upgrades and downgrades are mere words, but what really matters is how the big boys act.

Luckily for Wall Street watchers, the Internet has made it easy to find this out, too. We simply need to read MSN Money's list of which companies the institutions are buying. Of course, "monkey see, monkey do" may not make for the soundest of investment strategies. Even as we view the professionals' words with skepticism, so, too, we might want to think twice before blindly imitating their actions.

And yet, there are times when Wall Street is buying, and the smartest investors on Main Street agree. At Motley Fool CAPS, we track the opinions of 73,000-plus lay and professional analysts, then overweight the most successful raters' opinions, arriving at a CAPS rating of one to five stars (five being the best). When opinions on Wall Street and Main Street intersect, that just might be the time to do some buying.

Here, then, is the latest version of Wall Street's Buy List, along with a summary of how CAPS investors view the companies:

	Currently Fetching	CAPS Rating
Iteris (AMEX: ITI)	$3.26	***
Mosaic  (NYSE: MOS)	$69.47	****
Vista Gold (AMEX: VGZ)	$7.40	****
Rick's Cabaret  (Nasdaq: RICK)	$17.68	***
Virco Manufacturing  (Nasdaq: VIRC)	$11.50	****
Massey Energy  (NYSE: MEE)	$31.23	**

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
Wall Street's hottest picks get a generally warm reception on Main Street this week, with half of the stocks on our list enjoying above-average endorsements on CAPS. But in this column, as in Highlander, "in the end, there can be only one." Top honors this week go to an unlikely winner: Amex-listed Iteris, which makes outdoor machine vision systems and sensors -- traffic detectors, basically -- used to regulate traffic flow at intersections.

As such, the company bears an uncanny resemblance to Image Sensing Systems (Nasdaq: ISNS) -- one of the "Tiny Gems" highlighted in the pages of Motley Fool Hidden Gems. Interestingly, both companies turned in pretty impressive third-quarter reports last month, which helps to explain why the Street is holding its nose and buying into the Amex-listed stock this month -- it seems there's money to be made in traffic management.

Build-a-bull, anyone?
As for how much money one might make on Iteris, or how likely the investment is to pay off, CAPS players are reticent to say. Although the stock gets a near-unanimous 25 out of 26 outperform ratings from those who've reviewed it, only two players have posted pitches explaining their ratings, and neither is substantive in nature.

But no matter. I think I can flesh out a bull thesis on this one.

Iteris carries the burden of being "damned with faint praise" from Wall Street. The consensus of analysts polled is that this company will grow its earnings at 50% per year over the next five years -- but "consensus" may be too strong a word here. It seems only one analyst follows the stock, and until we've been given reason to do otherwise, I suspect we should add a few dashes of salt to his or her estimates. Yet even if Iteris manages no more than the 19% compound rate of profits growth it has achieved over the past five years, the stock's trailing P/E ratio of 21 looks fair. (And of course, the closer Iteris hews to 50% growth going forward, the better today's price will appear.)

The firm carries a sizeable slug of debt, but turned free cash flow positive in the quarter ended in June. This has not often been the case, historically. For Iteris to succeed as an investment, we'll want to see further proof that the company can generate cash profits that can be used to pay down -- not add to -- that debt. Speaking of which, our first clue will come whenever Iteris gets around to filing its 10-Q for the most recent quarter -- last month's earnings report failed to include a cash flow statement (tsk, tsk). Fingers crossed.

Time to chime in
See how simple it is to write a CAPS pitch? Why, to paraphrase the GEICO commercials, "It's so easy, a bull could do it." And Iteris bears -- never fear, you can play, too. Come on over to Motley Fool CAPS, and remind us why this company is on the Amex, and not the Nasdaq, in the first place.