Wall Street's Buy List

"Actions speak louder than words." There's more than a grain of truth to that old chestnut, I'll warrant. But why does the media focus so much attention on what Wall Street says about companies? After all, upgrades and downgrades are mere words, but what really matters is how the big boys act.

Luckily for Wall Street watchers, the Internet has made it easy to find this out, too. All we need do is read MSN Money's list of which companies the institutions are buying. Of course, "Monkey see, monkey do" may not make for the soundest of investment strategies. Even as we view the professionals' words with skepticism, we might also want to think twice before blindly imitating their actions.

And yet there are times when Wall Street is buying, and the smartest investors on Main Street agree. At Motley Fool CAPS, we track the opinions of 70,000-plus lay and professional analysts, then overweight the most successful raters' opinions, arriving at a "CAPS rating" from one to five stars (five being the best). When opinions on Wall Street and Main Street intersect, that just might be the time to do some buying.

Here, then, is the latest version of Wall Street's Buy List, along with a summary of how CAPS investors view the companies:

Wall Street vs. Main Street
Oh, my! Main Street isn't at all enthralled with Wall Street's picks this week. Often, the very fact that Wall Street is buying a stock causes its price to rise, putting investors in a festive mood -- but not this week. To the contrary, only one stock on Wall Street's Buy List meets with approval on Main Street: electronic payments facilitator Optimal Group.

Fools with long attention spans may recall that Optimal Group was highlighted on this page once before, back in May, when it headlined the list of stocks that might be getting ready to "bounce." Well, it bounced all right -- like a dead cat -- then proceeded to roll right off a cliff.

Investors spent the next five months watching the shares plummet to where they sit today, smack-dab in the middle of penny-stock land. So why is Wall Street playing with the carrion here today, and should you join in the fun? Let's see what our panel of experts has to say.

The bull case for Optimal Group

• jpauling352 refreshes our memory on just who Optimal is: "OPMR has been beaten down with the rest of the online gambling world since the U.S. Govt passed legislation last fall. The good news is that this company is still going to be profitable and has room to grow in the coming years. Even with the possibility of paying $20M to the U.S. Gov't, OPMR still trades at book value. I am sure some people would argue over the true value of Goodwill on the balance sheet, but the future earnings right now are just about free."
• darkflame makes a very Green Gene-ish argument in favor of Optimal, observing: "Market Cap is less than one third than enterprise value. [Back in July, investors were] paying 181M for a company that has 128M in cash ready to spend, and 13% insider ownership. The company doesnt need to do good to be a bonanza stock. If it just performs alright, then it's enough to be a jackpot."
• Or in the laconic words of jensse: "Value nearly at cashlevel. Below book value."

Indeed. The fact is, when I highlighted the stock in May, it was trading at 0.8 times book value. Today, it sits at just about 0.5. With well more than $100 million on its books, the company trades essentially for the value of its cash, with the business discounted to nothing. Whether Optimal is in fact worth more than nothing remains open to debate -- certainly, the business hasn't performed since we last visited it. But if management can accomplish the simple task of not burning its cash (memo to board of directors: Hide all the matches), there would appear to be little downside to an investment at today's price.

Time to chime in
Of course, the aim of this column isn't to tell you what I think about Optimal Group. If you want a real expert's opinion on the stock, you need look no further than Hidden Gems Pay Dirt, where analyst Jim Gillies recommended the stock in February. On the other hand, if you already consider yourself an expert on Optimal Group, then we'd be most obliged if you'd stop by the CAPS board and tell us what you think of it.

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