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 150,000-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.

Jobless recovery? What jobless recovery? Hey, unemployment may still be growing, but the Dow's still over 10,000, and the Wall Streeters are partying like it's 2007, the last time we saw the upside of 10,000. Should you join them?

Survey says: No
Facts are stubborn things, and it's a fact as plain as the nose on your face that Fools disagree with Wall Street this week. I mean, get a load of the kinds of companies Wall Street is buying this week: Two profitless tech shops (one of which has only a dozen employees) and a wicker hawker. Be still my heart.

But wait -- what's this? A fourth company, with an above-average star rating? An insurance company hoping to capitalize on the booming Chinese economy? Now that one just might be interesting. Read along as we examine ...

The bull case for CNinsure
CAPS All-Star Grinnell4Eva was on to this China-based insurance broker way back in the summer of '08. "China's insurance market is in its infancy, as the country's economy [grows], so will its insurance market," Grinnell4Eva wrote, adding that the growth prospects alone suggest "A P/E under 25 on this stock is a crime."

CAPS member mazaroni agrees, arguing that: "Insurance is a natural part of the development of a world power." So unless you think the country impotent (and doubt its government's desire to become a world power), it stands to reason that an insurance industry will eventually sprout in China.

Of course, there's always the possibility that this industry will not be Chinese in origin -- that global insurance giants like AON (NYSE: AON) and Marsh & McLennan (NYSE: MMC) will stake their claim to the lion's share of the insurance business. But so far, international competition seems to be having very little effect on CNinsure's growth. As Veggix recently pointed out using renminbi, a currency: "In 2007 [CNinsure's] revenues were 448 M RMB, in 2008 the revenues were 844M RMB, which represents an increase of 88% in 1 year with an average gross margin of 48%. Not bad, not bad at all."

China, Inc.
But don't stop there -- just last week, CNinsure released its fiscal 2009 numbers, showing a further revenue rise to 1,155 million renminbi in 2009. That's about $169 million, 'Merican, and about 37% more revenue than CNinsure collected in 2008.

Now sure, 37% growth is quite a deceleration from the blistering pace of growth CNinsure set in 2008 -- but with net income rising to 279 million renminbi last year ($40.9 million), we can see that the company actually grew its profits at a faster pace, thanks to strong margin growth, wringing 24 cents' worth of profit out of every revenue dollar it took in. Nice.

Bad news and good news
Such growth hasn't gone unnoticed, of course, as you can tell by the fact that this company is sitting here on "Wall Street's Buy List," for one thing. It's also now trading above Grinnell4Eva's "criminal" threshold of 25 times earnings -- in fact, it sells for a P/E of about 28. But as pricey as the stock looks on a P/E basis, its 34% projected annual growth rate over the next five years suggests CNinsure could be worth more.

Time to chime in
Is 28 times earnings too much to pay for an insurance broker? Is a 34% growth rate really sustainable in China? I'd tell you if I could, but to be perfectly honest, I know next to nothing about investing in insurance stocks -- and less than nothing about investing in insurance stocks in China.

So here's what I propose: Instead of me telling you what to do with CNinsure, why don't you tell me? If you've got an opinion on CNinsure in particular, or insurance or China in general, click over to Motley Fool CAPS and sound off.

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