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?
At one point, the answer was easy: We didn't know what the bankers were up to -- but no longer. Thanks to the folks at finviz.com, it's now easy to keep tabs on what stocks financial institutions are buying and selling. And thanks to the 170,000-plus lay and professional investors on Motley Fool CAPS, we've also got insight into whether these decisions make sense.
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 ...
- Bullish on terrorism and PharmAthene's ability to profit from the threat by providing anthrax vaccines to the government.
- Banking on a "beat" when Flagstar reports its fourth-quarter earnings Wednesday.
- Backing William Blair's play in the wake of last month's "buy" rating for Exact Sciences.
- Eternally optimistic about Avanir, its Nuedexta drug, and its strong stock returns.
Wall Street also seems to be leaning heavily toward the smaller-cap segment of the market. The biggest of the companies named above sports a bare $500 million market capitalization, while the average stock on this week's list carries a valuation barely half that.
And you know what? They're not alone in this. Turns out, the favorite stock on today's list among individual investors is also a relative lightweight, valuation-wise. Allow me to introduce you to ...
The bull case for Winner Medical Group
Despite being involved in the "medical industry" and being located in China, the Winner Medical Group is hardly exotic. Winner's main business activities consist of manufacturing gauze pads and cotton swabs for dressing wounds, and knitting hankies and bath towels. Winner is the very definition of a commodity business. Regardless, a lot of folks really do expect this stock to be a winner.
CAPS All-Star WiseChoice4u2 cites "China government support for health" as one trend putting wind in Winner's sails (and sales). CAPS member mattm712 agrees that Winner "will likely benefit from increased spending on health care in China... that's a lot of people. Also, their PurCotton product has some export value to it."
Is this stock a winner?
This stock should be a winner, right? I mean, the company's success is spelled out right there in the name, and we've got truth in labeling laws and all. There's also the fact that no less an analyst than Goldman Sachs recently advised investors to begin moving away from "risky" medical stocks like Intuitive Surgical
On the other hand, it's hard to argue with the valuation at Winner. Right now, a share of the company can be had for the low, low price of just 10.6 times earnings. Not bad for a company that most folks on Wall Street expect to grow at 26% per year. While it's true that the company's free cash flow currently does not measure up to reported GAAP net earnings, it did as recently as last year. And a review of the firm's cash flow statements leaves me thinking the company really is improving its performance on the free cash flow front.
Time to chime in
When you get right down to it, about the worst thing I can say about Winner is that, at 27 times free cash flow and a 26% growth rate, the stock may be "only" fairly priced. Any improvement at all in the cash-production trends, though, any closing of the gap between reported earnings and actual free cash flow, and this stock really could turn out to be a Winner. Big time.
Disagree? Think you've got a better idea to profit from the billion-consumer marketplace that is China, or a better way to play the medical products market? Click over to Motley Fool CAPS now, and tell us all about it.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 627 out of more than 170,000 members. The Fool has a disclosure policy.
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