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 snapping up these stocks just as fast as they can hit the "buy" button. Meanwhile, Main Street investors seem happy to oblige 'em -- by selling. The only stock on the list that CAPS members want to keep in their portfolios, it seems, is Wonder Auto Technology.

"Wonder" why Wall Street is investing in auto parts? Curious as to why rank-and-file investors are buying right alongside 'em? Let's pop the hood on this story, as we explore...

The bull case for Wonder Auto Technology
CAPS All-Star ksnively introduced us to Wonder back in late 2007 as:

The second largest supplier of starters and alternators in China. … Their growth so far has been attributable to existing customers, by way of the growth of China's auto market and increased market share. They hope to augment future growth by expanding their export business, with an eye on Europe and the United States.

Wonder already counts international auto giants Ford (NYSE:F), Toyota (NYSE:TM), and Cummins (NYSE:CMI) among its customers. Our All-Star ksnively adds that Wonder plans to expand foreign sales to 30% of its revenues over the next few years.

In August last year, doctordave77 mused as to how "[Wonder] seems to be in the right place at the right time, producing small car brakes and other parts. Overall, oil won't be getting cheaper ... Smaller and more efficient cars are the place to be in the auto market, and that's where they are."

And late last year, All-Star investor MJKpayday signed off on Wonder as well, calling the company "a prudent investment with hints of a lottery ticket." According to MJK, Wonder's "42% YOY growth over the last 4 years" probably is unsustainable, "but there is plenty of room to continue healthy growth … [whereas] the company is currently priced for stagnating and then eventually no future auto sales."

Wonder's breakneck pace of expansion is, however, coming at a cost to free cash flow. Usually profitable on a free cash basis in years past, last year Wonder sank more than $8 million into the red as it ramped up capital spending.

Mind you, this isn't yet showing up on Wonder's income statement -- to the contrary, from a GAAP point of view, 2008 was Wonder's most wonderful year ever, with net profits soaring to nearly $19 million, and currently the P/E sits at a puny 7.8.

Foolish takeaway
Analysts expect Wonder to post 20% earnings growth next year, and continue growing at about 12% annualized over the next half-decade. If it achieves these numbers, the stock looks awfully cheap at today's P/E. Just keep a close eye on free cash flow, Fools, and make sure it backs up those headline numbers.  

Time to chime in
Wondering whether Wonder is the stock for you? Don't keep your daydreams to yourself -- tell the world! Give the company's financials a good gander, and then click on over to Motley Fool CAPS to share your thoughts about the company and its prospects.