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 60,000 lay and professional analysts, and 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:

Companies are selected from the "Institutional Ownership Up Last Month" list published on MSN Money on the Saturday following close of trading last week. Price increase and current pricing also provided by MSN Money on the same date. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
It looks as though someone opened a fire hydrant on Main Street -- not to sprinkle kids as they play in the summer sun, but to douse Wall Street's hottest picks with a cold dose of reality. Of the six stocks arriving new on Wall Street's Wish List this week, fully half receive the CAPS booby prize of just one star. Two more get a half-hearted three-star rating. In fact, there's only a single company here that investors expect to beat the market -- a stock with a name just this side of printable in a family publication: electrical equipment and components maker AZZ Incorporated.

A full 126 out of 129 CAPS All-Star investors are bullish on this company. Let's find out why:

The bull case for AZZ Incorporated

• The recurring theme among CAPS players seems to go like this: Perennial CAPS outperformer TMFEldrehad likes the stock, and we trust his judgment. Problem is, TMFEldrehad's pitch in favor of AZZ actually calls his pick an "experiment" that he's willing to put through a trial on CAPS but would "never do with real money." Hardly a ringing endorsement.
• Fellow All-Star Orangejello, however, seems to have an independent basis for recommending the company, observing that the "market anticipates decrease in zinc prices [zinc is a raw material for AZZ]. Increasing revenues decreasing cost of goods sold = $$."
• rmenschel's pitch is even more detailed, citing "good margins, average debt, great growth [and] a [PEG ratio] of 0.89" as reasons to own the stock. (However, considering that only two analysts follow AZZ, that neither one is on record with a five-year projected growth rate, and that the stock carries a trailing price-to-earnings ratio of 20, I'd take that PEG estimate with a grain of salt.)

Granted, if AZZ can maintain the rate of profits growth it's experienced over the past five years -- just shy of 25% per year -- then today's price really does look quite nice. However, the consensus of the two analysts following the stock calls for less than half that rate of growth next year, and as already noted, it makes no prediction further down the road. As they say, "past performance is no guarantee of future success."

Time to chime in
That said, the aim of this column isn't just to tell you what I think about Wall Street's favorite stocks -- or even what our All-Stars are saying. We also want to hear what you know about the company. Do you like the look of this company, or are investors better off sitting on their hands for this one? 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. 769 out of more than 60,000 raters. The Fool has a disclosure policy.