Wall Street's Buy List

If actions 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 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 provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Big Pharma (and even more so Little Pharma) are back in fashion. Up on Wall Street, the bankers are polishing their wingtips and making tracks to invest in the biotech revolution. But should you follow in their footsteps?

Survey says "maybe"
According to our CAPS community, which gives most of the Wall Street favorites on this list middling-to-poor marks, Fools probably shouldn't rush in. There may be one diamond in this rough bunch, however, and that's the one we'll be looking at today.

The bull case for Caraco Pharmaceutical Labs
Last week, fellow Fool and biotech savant Brian Orelli took a look at the investing implications of the new health-care law. He concluded that among many name-brand winners -- including Pfizer (NYSE: PFE), Merck (NYSE: MRK), and AstraZeneca (NYSE: AZN) -- the makers of generic pharmaceuticals would shine especially bright. Brian named Teva Pharmaceutical (Nasdaq: TEVA) and Mylan (NYSE: MYL) as two likely winners, but our CAPS community seems to think Caraco Pharma might not be too far behind.

Says CAPS member DetroitNewbi: "With the heath care reform and the push toward generic drugs, I believe this stock will do well."

Even before the reforms passed, CAPS All-Star expatriot08 was predicting great things for this stock: "Generics will always be in need and as the Detroit plant gets rolling and once the FDA is on their good side again this stock should be back up closer to the 10 range."

And while not necessarily calling for a $10 share price, CAPS member SeekBalance does believe that with a "deep-pocket parent (Sun)" and a "depressed" stock price today, there's "almost no downside risk" to Caraco from this point forward.

More than meets the eye
I tend to agree. You see, while doubters will point to the company's GAAP loss last year, and note that no one's predicting profits this year either, there's more than meets the eye in both of these observations.

As regards this year, for example, the reason the stock has no "forward P/E ratio" is less a function of no one seeing forthcoming profits, as it is the fact that no one's looking for profits. Only one analyst follows this stock on Wall Street, and that one analyst has no estimates on record for fiscal 2011. Result: no P/E and a false assumption that things will never get better at Caraco.

What's more, things aren't going that badly even now. On the contrary, although the company earned much less revenue than it had the previous two years, the company generated significant free cash flow for the year -- $26.5 million. That's the most the company has made at any time in its history, and good enough to put a free cash flow valuation of less than 10 on this stock.

Time to chime in
Lacking reliable growth estimates on Caraco, it's difficult to say whether this valuation is as cheap as it looks (and it does look cheap). But the way I look at it is this: The generics industry as a whole grew its revenues 26% last quarter. Teva is expected to grow at nearly 14% over the next five years, and Mylan at 16%.

If you believe that Caraco can manage a pace anywhere near those levels (as I do), the stock has to look pretty attractive at today's prices.

Or does it? One Fool's opinion does not a consensus make, and if you have a different opinion, we'd love to hear it. Click over to Motley Fool CAPS now, and sound off.