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

"These are a few of our favorite things ..."
And no wonder Wall Street has taken such a shine to 'em lately. For example, by now you've all heard about BHP Billiton's blockbuster bid to buyout Potash of Saskatchewan -- and the rapid rises in stock price at peer fertilizer producers Mosaic (NYSE: MOS) and Agrium (NYSE: AGU) that followed the news. Investors are betting on a bidding war breaking out among BHP and rival miners such as Vale and Rio Tinto -- a war that could easily spread across corporate borders, inflating valuations across the board. Any Wall Street wizard who's managed to miss this story must have been asleep at the switch.

Nor was the story on Atlas one to be shrugged off. On Friday, an article on SeekingAlpha.com sang the praises of Atlas' investment in the Marcellus Shale formation and argued the company is "set to dominate" natural gas production in the largest natural gas reservoir in the U.S.

Big stories. Big stock gains. But call me a contrarian -- I personally think that the most interesting stock on Wall Street's shopping list this week is Chinese headhunter 51job. And I'm not alone.

The bull case for 51job
While hardly a household name in the U.S., 51job has long been a favorite of CAPS investors. As far back as August 2006, CAPS member zhang505 was predicting 51job would become "the next Monster in China." ("Monster" as in Monster Worldwide (NYSE: MWW), not monster as in Godzilla.)

Sensing a trend, fellow CAPS member dibs64 soon agreed, predicting that "as people move out of the rural areas they will be hunting jobs in the cities" -- which can only be good for a jobs-advertising site.

Even better, 51job is not just an online operation. As JUMPKIS once reminded us, 51job also "runs a print business. What a lot of people forget is that the vast majority of Chinese do not have access to the Internet. JOBS does print job adverts, especially in growing rural areas."

Be that as it may ...
The fact remains: It's incredibly difficult attaching a valuation to this stock. Selling for 30 times earnings, and perhaps 30 times free cash flow as well (it's hard to tell, because 51job doesn't release cash flow information regularly), the stock certainly looks expensive. According to Yahoo! Finance, only two analysts still follow the stock, collectively estimating it will grow at about 15% per year over the next five years. If correct, this would appear to be slower growth than necessary to justify the stock's 30 times multiple.

However, we don't know exactly who these "analysts" are (although one of 'em may be Citigroup), or how good they are at what they do. What we do know is that in its most recent quarter, 51job posted 31% revenue growth in its print division, 61% growth online, and a combined 43% surge in revenue. Profit margins jumped to 20% (which is better than Monster, if worse than local on-line jobs rival NetEase.com (Nasdaq: NTES)). Together, faster growth and improved margins resulted in a 160% rise in Q2 earnings -- a far cry from mere "15% growth."

Time to chime in
With limited coverage on Wall Street, and consequently little guidance as to how its growth might play out over the next few years, 51job is a bit of a mystery. If you take Wall Street at its word, the company's projected growth rate seems to give little reason to buy the stock today. On the other hand ... if 51job is really that expensive, then why is Wall Street buying shares for its own account?

So today, we turn to you for help. Take an objective look at the stock. Ignore what Wall Street's telling you. What's your hunch about where 51job is headed? Tell us on Motley Fool CAPS.