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?

Luckily for Wall Street watchers, the Internet brings us MSN Money's list of which 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 170,000-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 Buy List, alongside our investors' opinions of the companies involved:

Companies are selected from the "Institutional Ownership Up Last Month" list published on MSN Money after close of trading on Friday. 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.) But not all of our CAPS members are convinced.

Beginning at the bottom, we find China MediaExpress -- a stock that's up 60% over the past 12 months, yet still costs less than nine times earnings. Little wonder Wall Street is excited about this one. And yet the number of CCME shares sold short by investors has more than doubled over the past three months. Could it be that CAPS members, who've given the stock only a paltry two-star rating, are onto something?

Next up on Wall Street's wish list -- and CAPS members' hit list -- is Coinstar. The company's coming off its seventh consecutive "earnings beat" and still growing great guns. Yet investors are right to worry whether it's a good idea to be paying 48 times earnings for a DVD vending machine when it's becoming more and more obvious that Netflix, and streaming video, are the future.

Further up the list, and higher on the "speculation scale" as well, are a couple of energy plays due to release earnings early this week. Wall Street's betting big that Puda and Abraxas will impress when they release third-quarter earnings. (Place either, or both, stocks on your Fool watchlist now and see how these bets play out.)

Last but not least -- actually, it's the best-rated stock on the list -- we come to IP telephony services provider 8x8. Alone on today's list, it enjoys support from Wall Street and Main Street alike. But does it deserve it? Let's find out.

The bull case for 8x8 Inc.
Why buy 8x8? CAPS member bobbobtd sings the stock's praises (loudly): "VERY GOOD CASH FLOW & PROFIT MARGIN INSIDER OWNERSHIP, MAJOR HOLDS BUYING IN LAST 6 MONTHS."

No need to shout, bobbobtd. We hear you. And CAPS member zencamebronson echoes the sentiment: "Companies are sure to switch to VoIP services for the increased value and lower costs. [8x8] has been steadily growing its SMB customer base by ~1K/qtr with no slowdown in sight. The company is conducting a $3M stock buyback and recently had some insider buying."

Now, the great thing about CAPS is that we're bound to have members with firsthand knowledge of the industries they invest in. So let's give the last word today to CAPS member kleyau, who tells us: "I used to install VoIP systems ... the industry is going to be huge..."

David vs. multiple Goliaths

Of course, "the industry" becoming huge isn't necessarily the same thing as "one company within that industry, by the name of 8x8," doing well. Fact is, little 8x8 occupies a very small footprint amid a field trampled by giant competitors -- AT&T (NYSE: T), Vonage (NYSE: VG), and Comcast to name just a few. Worse still for 8x8, all of these rivals earn operating margins significantly higher than what 8x8 can produce, leaving it vulnerable to price wars that could drive it right out of existence.

The pair of analysts who currently follow 8x8 think it's up to the task, and will grow at better than 22% annually over the next five years in spite of the competition. But I'm not so sure. And I'm even less certain that this putative growth rate is fast enough to justify 8x8's near-40 price-to-earnings ratio (or its price-to-free cash flow ratio, which is even more expensive).

Time to chime in
Between 8x8's high price tag and its Goliath-like competitors, I'm not inclined to wager money on the David of this story. Seems to me, that's a sucker's bet. But there's no law that says you have to agree. If you know why this stock might be worth what it costs, here's your chance to set me straight. Click over to Motley Fool CAPS today, and tell me why I'm wrong.

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