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 Thursday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
Up on Wall Street, the pinstripe-and-wingtip crowd are buying these stocks like there's no tomorrow. But down here on Main Street, Fools are busy debating whether they've got a future at all.

Take Neurocrine Biosciences, for example. According to our CAPS thumb-nail description, the company: "Discovers, develops and intend to commercialize drugs for the treatment of neurological and endocrine-related diseases and disorders." Once upon a time, the Fool's own TMFBreakerJava gave Neurocrine a vote of confidence on "encouraging results for their endometriosis drug elagolix." Yet two years later, "NB's" revenues are still basically "N/A." Meanwhile, the company's burning cash at a frenetic pace.

The situation's a little better at American Medical Systems. Here, we find a company with not only revenues, but substantial profits and a not-indefensibly high P/E ratio. CAPS member ManOReason72 calls the "fundamentals and earnings growth" of the company "strong" -- and I'm inclined to agree. Seems to me, the only thing keeping this three-star stock from earning a fourth or fifth star, and becoming a promising investment, is a little bit more pep to its predicted 12% growth rate. (This one could be worth watching.)

Best of all, though, in the opinions of CAPS investors and in my own, is a little shop you've probably never heard of. MWI Veterinary is the name, and peddling drugs to dog docs is the game. Why do we like it?

The bull case for MWI Veterinary Supply
CAPS legend EldrehadsPicks first brought MWI to our attention last summer, musing: "If most families are anything like ours, looking after the health and well being of one's furry, feathered, or scaly family members is one of the things that will continue to be relatively high on the list of financial priorities. ... After all, how many businesses grew the top line by about 12% during the first two quarters of FY09 – during one of the most severe economic declines any of us have ever seen, yet still sport, in my opinion, an attractive valuation?"

And he isn't the only one who thinks so. The Fool's own TMFJMo calls MWI: "Overlooked and still undervalued based on the owner earnings they continue to bring in." Echoing Eldrehad's observation on the company's growth, JMo observes: "Management also seems quite capable, particulary in recessionary times."

The great thing about CAPS, of course, is that with 165,000 members and counting, we often hear from investors who have first-hand knowledge of the company's they're rating. With that in mind, let's finish up with a quote from samthevet, first penned back in 2006: "MWI is a fantastic distributor for veterinary products ... As a customer, I own three veterinary hospitals, their customer service is excellent."

Hooray for them
What's that you say? You're glad to hear their customers express LUV 4 MWI, but you're not quite sure the stock is as cheap as Eldrehad and TMFJMo suggest?

Well, I can see how you might get that impression. At 22 times trailing earnings, MWI does look a bit pricey relative to rival meds distributors. Across the industry, whether it's Henry Schein (Nasdaq: HSIC) you're looking at, or Patterson Companies (Nasdaq: PDCO), or PetMed Express (Nasdaq: PETS), "16 times earnings" appears to be the going rate for companies doing this sort of business.

But before you write off MWI as "too expensive," consider: Out of the four companies named, MWI is by far the fastest grower, increasing both its sales and earnings roughly 33% last quarter. That's twice as good as the next-best company on the list. I'd also point out that the P/E doesn't tell the whole story. Fact is, not all of the cash MWI generates gets reported as "net income" on its income statement. Fact is, the company generated a whopping $32 million in free cash flow over the past year, while reporting only 90% of that as its "profit."

Foolish takeaway
So valued on its free cash flow, the company really sells for something closer to a 20x multiple. For a company expected to grow at 16% per year over the next five years, a company that's beaten similar expectations in all four of the past four quarters, and grown north of 27% per year over the past five years -- that doesn't seem an unreasonable price to pay.

The question, of course, is whether "not unreasonable" is close enough to "cheap" to entice your investing dollars. So, what do you say, Fool? Is it? Click over to Motley Fool CAPS now, and tell us what you think.