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 125,000-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 on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
As Main Street investors peruse Wall Street's buy list this week, you can see heads nodding in agreement. Gold? Yep, in a weak dollar world, gold should provide some mighty fine returns. Platinum? Even better. Silver? Still shiny -- buy it. Basically, CAPS members are as bullish on precious metals as any Rolex-wearing Wall Streeter. But what's this "Caraco" shop doing on the list?

Never heard of it myself, and that's what piques my interest. Without further prelude, therefore, we'll dive right in and take a look at ...

The bull case for Caraco Pharmaceutical Labs 

• We lead off with a pitch from 2007 from CntrlSrcutinizer, attracted to Caraco primarily by its "contrarian business model in the [pharmaceuticals] business. They're not out to produce *any* new drugs. Instead, they control costs better than anyone and pick and choose which generic drugs they want to make, from the many fine drugs who's patents are expiring soon. ... They are highly automated, get their active ingredients from a parent company in India, and have set up shop in Detroit, the cheap manufacturing space, low-overhead capital of North America."
• Next, we hear from CAPS veteran TheHarm, who wrote in early last year with the following thoughts: "No debt, solid growth, great fundamentals... Add that to the fact that a large amount of drugs are going off patent and this company looks solid gold."
• And stockblog thinks there's even a possibility that Caraco will become a merger and acquisition target: "The generic drug industry is rapidly consolidating ... including ... buyout offers from ... Industry leader Teva Pharma [Nasdaq: TEVA] ... Sanofi-Aventis [NYSE: SNY] ... According to IMS Health statistics, generic medications accounted for 63% of all medications dispensed in the United States in 2006, representing a growth rate of over 22% for unbranded generic drugs."

Which leads us to the question of the hour: Is Caraco a good enough company that it might attract a buyout offer? Is it good enough to attract you?

Well, let's see here. The stock sells for a P/E of six -- that sure looks attractive. We cannot calculate a PEG ratio on this one, though, because despite the fact that Caraco has posted compound annual sales growth north of 90% per year over the past three years, not a single Wall Street analyst is yet covering the stock. (At least not officially. With all this buying going on, you have to figure somebody has taken an interest.)

Profits don't look too shabby, either. Caraco is generating returns on investment capital north of 24% -- twice the level of Pfizer (NYSE:PFE), and nearly twice as good as Merck (NYSE:MRK). Really, the only problem I've got with the stock is that its free cash flow seems a mite anemic. GAAP profits are flying, but with most cash flow being plowed right back into the business, the company is barely breaking even from a free cash flow-perspective.

Time to chime in
Is that enough of a quibble to scare you away from a 90% growth story? Or do you agree with our CAPS members that Caraco is worth a nibble today? Here's your chance to tell us your thoughts on the company: Just click on over to Motley Fool CAPS and cast your vote. 

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