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 in time, 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 also have 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:
(out of 5)
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 are five stocks are the greatest things since sliced bread. (And by "bread," I mean money.) They're:
- Following Teva's
lead, and helping the run-up at Rexahn. (Nasdaq: TEVA)
- Betting that Amgen's
purchase of BioVex Group will put Oncolytics in play. (Nasdaq: AMGN)
- And eagerly snapping up shares of YM and Somaxon as these biotechs conduct follow-on offerings.
Wall Street seems particularly partial to biotech stocks of late. And yet, if you scan the ratings of these companies on CAPS, it seems individual investors are less enthused with the sector. They're giving mediocre three-star ratings to Somaxon and YM, and scoring Oncolytics and Rexahn a mere one star each. So who do our CAPS members like? Three words:
Pengrowth Energy Corp.
Never heard of this particular corporation? Don't be confused. The artist formerly known as "Pengrowth Energy Trust" converted from a Canadian income trust to an honest-to-goodness corporation on Dec. 31 of last year, exchanging its trust "units" for shares of common stock.
But whatever its corporate form, CAPS members have a lot of love for Pengrowth.
All-Star investor countylongford points out that Pengrowth has good oil reserves. And Fellow All-Star kpscott likes the sound of that, reasoning: "energy will continue to go higher, enabling the already large dividend of this company to grow."
Actually, though, a good number of the recommendations for Pengrowth on CAPS focus on the size of the company's dividend, which has averaged 14.5% over the past five years. Now that Pengrowth is a corporation, though, and lacks the tax incentives to distribute the bulk of its income as dividends, the forward dividend rate is expected to come in a bit lower -- just 6.8%.
So with a dividend half as generous as its historical norm, the question arises: Is 6.8% a big enough number to justify buying the stock? Personally, I think it is -- for two reasons:
- If Pengrowth was able to support 14.5% dividends for five years running as a trust, simply changing the corporate form shouldn't make the company less profitable. Logically, it just incentivizes management to use its earnings differently, by retaining and investing earnings in the company, rather than paying them out as dividends. The profits are still there -- just like the company, in different form.
- Second, speaking of profits, Pengrowth earned $270 million over the last 12 months and generated free cash flow 16% higher -- $313.5 million. At less than 14 times earnings, and less than 12 times free cash flow, the company doesn't look at all expensive to me.
Time to chime in
Not if Pengrowth can match the industry's average expected long-term earnings growth rate of 12%, at least. But can it? That's where you come in, Fool. Here's your chance to tell us what you think of Pengrowth's chances and why. Click over to Motley Fool CAPS now, and sound off.
The Fool owns shares of Teva Pharmaceutical Industries, but 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. 658 out of more than 170,000 members. The Fool has a disclosure policy.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.