Wall Street's Wish List

"Actions speak louder than words."

It's an old saying, with more than a grain of truth to it, I'll warrant. So why is it that when the Wall Street firms merely "initiate coverage" or "upgrade" their ratings on a company, that gets all the news coverage? After all, those are only words, when what really matters is how the big boys act. Luckily for Wall Street watchers, finding out which professionals put their money where their corporate mouthpieces are has become relatively easy in this Internet age of ours. All we have to do is read MSN Money's list of which companies the Street is most actively buying.

But once we've done that, what next? After all, "Monkey see, monkey do" may not make for the soundest of investment strategies. That's where Motley Fool CAPS can help. The Fool's newest venture into the realm of collective intelligence collects ratings from nearly 25,000 lay and professional analysts, then overweights the most successful raters' opinions to come up with a "CAPS rating" from one to five stars (five being the best). If Wall Street's buying and the smartest investors in Fooldom say they're right to do so, then that should get your attention.

And so, let's meet today's list of contenders:

Wall Street vs. Main Street
Main Street is of two minds about Wall Street's top picks this week. Investors share the professionals' enthusiasm for oil and gas stocks. Strangely, they also seem optimistic about Methode Electronics, whose fortunes are tied in large part to the ailing auto industry. However, when it comes to mining metals, building manufactured housing, or selling electricity, they're less than enthralled.

The top vote, as you can see, goes to Alon USA Energy, a Dallas-based refiner of heavy and sour crude oil. This despite the fact that the firm looks more richly valued than its super-successful, much larger competitor, Valero (NYSE:VLO). Why all the enthusiasm -- in professional as well as lay investing circles -- for a company trading at a premium to Valero on price-to-book, price-to-sales, and price-to-earnings? Let's find out.

The bull case for Alon
Over at Motley Fool CAPS, 131 out of 137 of our fellow investors like Alon a lot, and several of them have taken the time to tell us why. Whittling down the commentary to our elite cadre of CAPS all-stars -- who give the company a thumbs-up by a 51-to-2 margin -- here's what they have to say about Alon:

• nicvo thinks Alon is "experienced and well-managed in a traditionally thin margin business which is benefiting from higher oil-prices and shortage in capacity within the continental U.S. Non-dilutive acquisition strategy currently values it at 6x prospective earnings. A keeper if one believes oil prices to stay [in the] ... $55-70 range."
• rmacklin points out that Alon has a "large share of asphalt in SW U.S., making cash and growing earnings, acquiring assets. ALJ makes $$ if crude price is up or down, and is well situated for high-sulfur crude and low-sulfur diesel. Significant growth YOY in store sales."
• Tekonn addresses the Valero/Alon question head-on: "One of the few small refineries inside the USA with no plans yet to build additional capacity. This is a no-brainer and goes along with the small-cap philosophy rather than picking Valero."

Time to chime in
There's no question that when it comes to small-cap-icity, Alon and its $1.7 billion market cap fit the bill much better than Valero does at $38 billion and change. For that reason, Alon appears to have considerably more growth potential than its giant competitor does -- as evidenced by the fact that last year, Alon grew its revenues more than three times as fast as Valero did. Still, the disparity in valuations between the two companies does seem worrisome. It basically comes down to the eternal investing question: "What price growth?" How much more should an investor be willing to pay for a fast grower as opposed to an existing titan?

That's not just a rhetorical question. We'd really like to know what you think about this. Click on over to Motley Fool CAPS, and tell us whether you think Alon's getting too high a multiple for its growth, too low, or just right.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's ranked 60th out of nearly 25,000 raters. The Fool has a disclosure policy.