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 130,000-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
Wall Street traders are grabbing up these stocks just as fast as catch can. Meanwhile, Main Street investors seem happy to oblige 'em. The only stock on the list that CAPS members want to keep in their portfolios, it seems, is Hong Kong-based Melco Crown Entertainment, which operates Macau-based gaming establishments.

Does Wall Street run pell-mell to Melco? Do Fools agree this is the right direction? We're about to find out (and test the logic of the move), as we examine ...

The bull case for Melco Crown Entertainment 
Melco caught the interest of CAPS All-Star investor LawfordCap recently, who noticed that this is a "hard hit sector [but] well postioned company." Which is at least half right -- scanning the competitive landscape, Melco's actually one of the lesser victims of a sell-off that has driven shares of Wynn Resorts (NASDAQ:WYNN) down about 80% in the past year, while Las Vegas Sands (NYSE:LVS) and MGM (NYSE:MGM) are off more than 90% apiece.

Depressing news to be sure, but as fellow All-Star Trimalerus argues: "What do people do when the economy is down and they are depressed? Go Gambling! That cliche is more true in Asia than in the US and this company is set to profit from the situation." 

And freddmo agrees with the thinking. Writing back in October, freddmo predicted: "Macau gambling revenues can only be helped by the current money crisis in the world. People in Asia will opt to gamble closer to home rather than travel and Macau is the logical choice."

And in fact, if you check out Melco's most recent annual earnings report, you'll see that year-over-year revenues roughly quadrupled in 2008, as occupancy rates hit 94% and per-unit winnings for table games (for the house, natch) soared past $20,000 per day.

Regardless, after looking closer at the company's financials, I'm afraid I have to disagree with Wall Street, with our CAPS community, with the team at Motley Fool Global Gains (which has recommended the stock) -- and pretty much with everybody who's ever expressed an opinion on Melco. Simply put, I don't like the stock, and here's why: Last year's surge in revenues, and the imminent opening of the lush "City of Dreams" casino notwithstanding, analysts currently have Melco pegged for only 8% earnings growth for the next five years.

A respectable rate for a recession, you say? Perhaps. But the fact remains that Melco lost money last year, is estimated to lose money this year, and sells for a 22.5 P/E on next year's earnings. Moreover, the company is staggering into the recession under a load of debt. Granted, Melco's less heavily leveraged than its larger rivals listed above. While this perhaps deserves polite applause, it doesn't change the fact that when weighed on its own merits, the stock looks just plain overpriced.

Time to chime in
But hey, that's just my opinion -- and as I've already said, most everyone else you ask likes Melco quite a lot. So feel free to disagree with me if you like. Click over to CAPS and tell us why you think this stock's a buy.

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