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 100,000-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:

Wall Street vs. Main Street
Main Street seems less than impressed with Wall Street's top picks this week. Two it's just OK with, and two more get roundly panned on CAPS. But there's one company on which Wall and Main intersect -- they both love hipster clothier Zumiez (and psst! Don't tell anyone, but we love it, too. Zumiez is a Motley Fool Hidden Gems selection). Let's find out why.

The bull case for Zumiez

• "Buy what you know," intones the ghost of Peter Lynch. (What? Not dead yet? My apologies.) Heeding the words of the apparently still-with-us investing legend is MITB, who writes: "Main reason I picked this stock is because it a great clothing/accessories store I shop at. Other than that [Zumiez] reported 4th qtr 2008 earnings of $0.42 per share on 3/13/08. This beat the $0.38 consensus of the 11 analysts covering the company and I recent news, Zumiez director Barnum buys 54,937 shares of stock."
• The Fool's own TMFBadger03 -- a CAPS All-Star player, I should add -- thinks "this is the perfect time to stock up on some cheap companies like [Zumiez]... This company is operating in a solid niche, has plenty of long-term growth remaining, and is trading at just 1 times sales." However, "California and Arizona are getting hit harder than average right now, due to the housing bubble. And those just happen to be some of Zumiez' largest markets... [E]veryone knows California is hurting. We can get a solid company at a cheap price, as long as we're willing to hold on until another up-cycle."
• What's more, oldcontrarian argues that Zumiez is "about as recession-proof as a retailer can get. Trendy + Cool > Recession." And last quarter's earnings appear to bear that thesis out.

Theories are all well and good, of course. But what about the valuation, you ask? And well you should, because that's where I have to part ways with the investors named above.

In full-throttle expansion mode, Zumiez has minimal free cash flow right now -- so I won't knock the company for that. But even if we generously agree to value Zumiez based on its P/E, we're looking here at a stock selling for 24 times trailing earnings, expected to grow at less than 23% per year going forward. To me, that suggests Zumiez's 12% run-up in price last week leaves the stock fairly valued.

At today's prices, Zumiez may be hip, but it's no longer a bargain. I suspect investors would be better served looking at slower-growing, but cheaper, rivals like Abercrombie & Fitch (NYSE: ANF) -- 14 P/E, 16% growth -- or American Eagle Outfitters (NYSE: AEO) -- 10 P/E, 14% growth. Therein lie better deals.

Time to chime in
Of course, the aim of this column isn't just to tell you what I think about Zumiez -- or even what other CAPS players are saying. We really want to hear your thoughts. Click on over to Motley Fool CAPS and tell us what you think.

Aside from selling clothes to teens, what else do Zumiez and American Eagle have in common? They're both official Motley Fool recommendations. Get the lowdown on why we picked Zumiez when you try out Motley Fool Hidden Gems for one month, free of charge. Learn more about our AE recommendation with a free trial of Motley Fool Stock Advisor.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool owns shares of American Eagle. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 742 out of more than 100,000 players. The Fool has a disclosure policy.