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 160,000-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 on the Saturday following close of trading last week. Recent price and CAPS ratings from Motley Fool CAPS.

Jobless recovery? What jobless recovery? Hey, unemployment may not still be growing, but The Wall Street Journal says the demise of the American shopper has been greatly exaggerated. The Dow's still hovering north of 10,000, and the Wall Streeters are partying like it's ... the last time we saw the upside of 10,000 -- 2007 and 2008. Should you join them?

Survey says: maybe
As the Journal reported last week, U.S. retail sales grew 0.3% in February, versus an expected blizzard-borne decline of 0.3%. With consumer sales accounting for 70% of the U.S. economy, Wall Street's "smart money" is betting that retail stocks like Zumiez and Coldwater Creek are due to turnaround -- but not everyone's convinced. Judging from the middling three-star ratings they're handing out to these companies, it seems CAPS members aren't yet sure that the retail rebound has arrived.

Logically, therefore, they're hedging their bets -- and few companies are better at hedging than Nacco.

The bull case for Nacco Industries
Quick: What do you think when you hear the name "Nacco"? Do you think forklifts? Coal mining? Can openers?

Actually, all of the above are correct, as this diversified mini-conglomerate has a hand in all of these activities, manufacturing everything from forklifts and other lift equipment, to can openers and coffee makers (under the Proctor Silex and Hamilton Beach brand names), to coal mining. Nacco even operates a chain of retail stores hawking its kitchenwares -- nearly 300 units strong.

CAPS members have been bullish on this stock for years, with torpol arguing way back in 2006 that: "The population is continuing to expand, people will always need food, and farmers will always need newer and bigger farm equipment." In 2008, deuspecuniae looked at the "food shortage problem" that was then driving shares of fertilizer producers PotashCorp (NYSE: POT) and Mosaic (NYSE: MOS) to all-time highs, and argued the same trend would benefit Nacco: "This growing food shortage problem is going to get worse ... I'm pretty sure right now is a good time to get into anything farm related."

And beyond the big picture-trend of rising food prices, and more specific to the stock itself, CAPS All-Star SuperPicks called Nacco one of a group of: "dividend paying stocks that has defended its balance sheet well the past few years. due to their dividend paying nature & the relative ability to take advantage of expansion in future years, these stocks shall handily beat the S&P 500 going forward."

Promise and performance
In fact, Nacco has beaten the S&P 500 -- over the last year at least, it's bested "the market" by better than 200 percentage points.

And deservedly so. Nacco had a rough time of things in first couple of years of the Great Recession, but it came roaring back in 2009, generating free cash flow in excess of $123 million (versus just $16 million in 2007, and a plunge deep into the red in 2008).

As for the future, well, analyst coverage of the stock is light, but the single shop covering Nacco believes this company can keep the momentum going, and grow north of 23% per year going forward. If it's right, that would make for a very attractive valuation on this stock -- roughly five times free cash flow for a 20%-plus grower. Nice.

Time to chime in
Of course, there are risks to investing in Nacco as well. For one thing, the company carries a heaping helping of debt on its balance sheet -- $378 million in pure long-term debt, plus another $98 million in pension and related retirement obligations. Nacco's strong cash generation last year helped to chip away at the debt load, and boosted cash levels to $256 million. But that still leaves the company with net debt in excess of $250 million, including that pension obligation.

If the economic recovery takes hold, if Nacco keeps generating cash flow at the levels we saw in 2009, and if it grows as fast as Wall Street expects, the stock still looks like an incredible bargain at today's price. However, one, two, three -- that's an awful lot of ifs.

Can Nacco overcome the uncertainties, and justify the faith Wall Street -- and Main Street -- are placing in it? You tell me.

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