Wall Street's Buy List

If actions do indeed speak louder than words, 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 100,000-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:

Wall Street vs. Main Street
Main Street seems less than impressed with Wall Street's top picks this week. With "green" being the new black, CAPS investors give profitless tech wizard Energy Conversion Devices a grudging pass. But Street faves RH Donnelly, Empire Resorts, and Virgin Mobile don't carry similar get-out-of-Mr.-Market's-doghouse cards.

The sole exception to the skepticism is a company that, I must admit, I've never heard of: SWS Group? Aren't they the British green berets?

Apparently not. According to Hoovers, SWS Group is the umbrella organization behind a Dallas-based broker named Southwest Securities, a bank also named Southwest Securities, and an insurance company mercifully named differently -- Southwest Insurance Agency. Now that we know whom we're talking about, let's learn why we're talking about them, as we examine ...

The bull case for SWS Group:

• Posting early last year, the cleverly named telawhopper1 called SWS a "Nice regional brokerage. With consolidation [in] investment services arena, SWS could get a look from several suitors. Purely a speculative play for acquisition though."
• A bit more than one year later, after SWS had sold off quite a bit, CAPS investor phredsee took a closer look at the firm and saw something even more substantial. "Solid management, solid principles, solid business model, and solid ROE (9.25%). ... [T]he Board of Directors ... increased the company's quarterly cash dividend to 9 cents per share, a 12.5 percent increase ... Now we're looking at close to 3% yield on this stock and a book value of $11.50... am I missing something here, or is SWS a steal at $10.85/share?" Nope. Turns out, phredsee didn't miss a thing -- and has reaped 53 points worth of market outperformance for his foresight.
• And even after the run-up, SWS intrigues one of our better investors. CAPS All-Star EMG114 writes just last week: "Not so long ago, SWS acquired M.L. Stern & Co., LLC and its subsidiary, Tower Asset Management, LLC. This along with increase in income in the reports shows the company is experiencing growth. [In] latest report from May 6th, the company reported a 13 % increase in third quarter net income, earnings per share of 32 cents, on net revenues of $74.1 million for the company's third fiscal quarter ended March 28, 2008. It looks good ..."

Indeed it does. No longer as cheap as when phredsee spotlighted them, SWS shares sell for a bit less than 1.6 times tangible book value today, which is also a bit less than the valuation accorded better-known brokers like Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER). SWS also boasts better operating margins than either of these two giants, and is growing its revenues as these "rivals" contract.

To this Fool's eye, that makes SWS both a potential acquisition target and pretty attractive in its own right.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about SWS Group, or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.