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 more than 28,000 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
Wall Street's favorite stocks track a bell curve this week. Of the six companies making the list, two score above average on Main Street, three more below, and one is right in the middle. Top honors go to IT specialist BluePhoenix Solutions, and no wonder -- every single one of the 33 CAPS players who've looked at it like it, including seven All-Star investors.

The mystery of the BluePhoenix
If that sounds like the title of the next book in a supposedly winding down Harry Potter series, well, that would be just appropriate. Because, five-star stock though it might be, no one seems to know much about BluePhoenix. It's a total mystery, and one not at all illuminated by the single CAPS pitch on record: "will dominate." (Will dominate whom? When? And how, exactly?)

Seeking to solve the mystery, I did a bit of digging on BluePhoenix, and came up with the following eggs of wisdom:

• The stock sports a trailing P/E of 38, versus "consensus" analyst expectations of 20% annual growth going forward.
• Only one analyst tracks BluePhoenix. Fortunately, that analyst is Roth Capital, a proven performer on CAPS, as demonstrated by its rating in the top 10% of CAPS players. While I'd ordinarily consider a 20% growth rate posted by a single analyst untrustworthy, the firm's reputation lends some assurance on that score.
• If BluePhoenix's resulting PEG of 1.9 sounds pricey, then investors might want to look a bit deeper, where they'll find that BluePhoenix generated $9.3 million in free cash flow last year, more than twice the sum generated in the prior year, and about 140% more than the firm's reported net income under GAAP.
• Result: The firm's price-to-free cash flow ratio of 16.4 suggests a significant discount to projected earnings growth.
• Trivia: Based in Israel, BluePhoenix is nearly 60% owned by another Israeli IT company -- this one not yet rated in CAPS, but due to become a rated company any day now: Formula Systems (1985) Ltd. (NASDAQ:FORTY). Incidentally, the parent company has a lower P/E ratio, no analyst coverage (hence no projected growth rate), and almost no free cash flow whatsoever.

Put it all together, and I'm of the opinion that BluePhoenix offers a better deal relative to the stock of its parent company -- and that it's a bargain in its own right.

Time to chime in
That said, the purpose of this column isn't for me to tell you what to do. It's to elicit your opinions on the stocks that Wall Street loves. So what say you? Now that we know a bit more about BluePhoenix, does it sound like a bargain? Or is it still too much of a mystery to risk buying?

Whatever your opinion, we'd like to hear it. Come on over to CAPS and tell us what you think.

Motley Fool CAPS: It's fun, it's free, and it just might make you famous.

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 currently ranked No. 1,493 out of more than 29,000 rated investors. The Fool's disclosure policy rises from the ashes.