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 165,000-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 after close of trading on Friday. Recent price from Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
After yesterday's shocking rebound, today's flatlined stock prices suggest that Mr. Market's taking an early weekend and deciding to sit quiet for a spell. Could this be your chance to catch him napping and snap up some bargains before the rally resumes? Up above, you see three of the equity names that Wall Street has been buying heavily over the past month. Let's take a look at each, in turn, beginning with Coinstar.

CAPS member Valyoo believes that the company's near-ubiquitous "Redbox" DVD vending machines "is the future." Fellow CAPS member Topwing argues that "Redbox has outstanding product placement, uber convenience and simplicity, and a great solution to the big chain video stores going out of business." (I think this member's talking to you, Blockbuster (NYSE: BBI).)

Speaking of great solutions, fauxvix thinks SanDisk has a great alternative to Apple's MP3 near-monopoly. Says fauvix: "[SanDisk] make quality products for people who do their homework for quality products (and in the information age, there is no excuse to own an Ipod." More than that, rc10b4 reminds us that SanDisk is more than just iPod-lite. It's also a "worldwide leader in flash memory for [cameras and] cellphones, [with a] strong balance sheet and good P/E."

Yet not all CAPS players agree. For whatever reason, our CAPS supercomputer is telling us to expect only average returns in the future for SanDisk shareholders, and below-average prospects for Coinstar. But don't lose heart, dear Fool. There's good news here, too.

The bull case for Liquidity Services
What's Liquidity Services, you ask? Well, basically, it's a company that provides services to companies that want to liquidate inventory -- wholesale inventory, salvaged assets, government surplus, whatever. Think of it as eBay (Nasdaq: EBAY) for the corporate set. According to dmanso: "Companies like these stride during bad economies."

And perhaps good economies as well? It could happen. CAPS All-Star bean1999 tells us that the company has "good management, no debt, [and a] govt. contract locked in."

But perhaps the strongest vote in Liquidity Services' favor comes from a Fool with firsthand knowledge of the company. Late last year, CAPS member pastordonpet decided to give Liquidity a try and "found it to be easy to use and handling goods that many small bussinesses use." Our CAPS member continues:

I have now purchased many times from two of their sites and have done both shipping and local pick up with my truck. I have found their [employees to be extremely] courteous and always helpful. I love it when a company stands up well on paper and I enjoy their services.

Paper or practice?
We'll have to take pastordonpet's word on how Liquidity Services works in practice for now -- but as far as how it looks on paper? That's easier to do. Examining the company's financials, we find the company generating plenty of profit but selling for a pretty high multiple to that profit – more than 33 times GAAP earnings.

Granted, that's the same multiple you'll find at rival Overstock.com (Nasdaq: OSTK), a company with less half the net profit margin that Liquidity boasts. Granted, too, on a P/E basis, Liquidity Services is cheaper than Amazon.com (Nasdaq: AMZN), which also has a smaller profit margin than Liquidity does. Still, for a projected 16% average growth of 16% over the next five years, 33 times earnings doesn't sound like much of a bargain.

But wait. Before you toss Liquidity Services on the scrap heap, take a moment to review its cash flow statement -- because I think you'll like what you see. Turns out, at the same time as Liquidity Services has been reporting barely $10 million in trailing earnings, it actually generated more than $23 million in free cash flow. Apply this to the company's market cap, and we find the stock selling for a much more attractive multiple of 15 -- which I think you'll agree looks just fine in light of the growth rate. On that price-to-growth basis, it looks quite comparable to the price eBay is selling for.

It's also just the beginning of the good news. Dig deeper into the financials, and you'll discover that Liquidity Services isn't just helping companies transform unwanted inventories into cash. It's also sitting on quite a pile of cash itself -- $68.5 million of the stuff, without a lick of debt.

Foolish takeaway
The more I look at the company, the more I like it. And really, what's not to like? This company has growth, profit, profit-backed-up-with-massive-free cash flow, and cash in the bank. I think it's got quite a bright future ahead of it.

Of course, that's just my opinion. What's yours?