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 170,000-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.

Wall Street vs. Main Street
Up on Wall Street, the professionals think these five stocks are the greatest things since sliced bread. (And by "bread," I mean money.) They're ...

• ... gambling that Acura's ACUROX pain meds will win FDA approval sometime within the next month and a half -- a development that would help both this stock, and partner King Pharmaceuticals as well ...
• ... hopping the momentum train at Ciena ...
• ... and betting on a second leg to the rally at InterMune (perhaps as soon as this week's JP Morgan Healthcare Conference?).

Optimism's rampant, too, that the government's planned "recap"at AIG will work out as well as the recent General Motors IPO did. And maybe it will -- for the bankers. But Fools know that what's good for Wall Street isn't always best for the rest of us. Scanning the ranks of the bankers' favorite stocks this week, it appears only one of these companies enjoys significant support down here on Main Street. The question is whether four-star-rated Hercules deserves the support. Here's what CAPS members have to say on the issue:

The bull case for Hercules Offshore
Pointing to a trio of "six-month extensions" on contracts inked with Chevron (NYSE: CVX),  as well as "rate increases that push the average price the San Ramon, Calif., oil giant will pay Hercules for each rig higher by as much as $6,000 per day," ace CAPS investor EnigmaDude sees every opportunity for Hercules to play the hero going forward.

And he's not the only one. Fellow All-Star investor FAOFool reminds us:

The Gulf of Mexico still has oil in it. This company worked in the Gulf prior to the spill, and they will continue to work ... The demand for oil will only go down when it becomes more economical to use other forms of energy...and we just are not where we need to be yet. HERO has a few decades to make some money.

Every hero has an Achilles' heel
But not everyone's so sanguine. Just last week, Wells Fargo put out a note downgrading Hercules to "underperform," and sending the shares down 15% in a day. (Hint: Underperform means "sell.") Pointing an accusatory finger at Hercules' debt-laden balance sheet (nearly $880 million in debt, versus less than $135 million in cash), Wells predicted Hercules will be forced to recapitalize through a sizable share issuance in the near future, diluting current shareholders.

I agree with Wells. Valued at $380 million, Hercules shares currently trade for 21.5 times the company's annual free cash flow -- a rich valuation in light of projected long-term earnings growth of 15%, and richer still when you factor the company's debt load into the equation. (The company's enterprise value-to-free cash flow ratio works out to just north of 67x.)

More underdog than hero
When you consider that larger, stronger competitors such as Transocean (NYSE: RIG) cost less than 10x free cash flow (or less than 13x with debt factored in), I honestly don't see the attraction of investing in Hercules Offshore today. My advice: Root for the underdog -- it's the American way. But do so from a safe distance. Otherwise, if Hercules fails in its attempt at a comeback, it could drag your savings down with it, in disgrace.

Think I'm being too pessimistic on this one? That's OK -- we welcome contrary opinions here at the Fool. In fact, if you've got a different opinion of the company, here's your chance to set me straight -- click over to Motley Fool CAPS right now, and tell me why I'm wrong.