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 125,000-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 is catching these stocks as fast as it can, but down here on Main Street, we can't imagine why anyone would want 'em. Well, most of them.

The stock heading our list today stands in stark contrast to the one- and two-starred coterie beneath it. Why does Xinyuan Real Estate Company -- hardly a household name -- have investors shouting "Three cheers!" down at the corner of Wall & Main?

The bull case for Xinyuan Real Estate Company
fleecethegeese laid out a pretty nice buy thesis on Xinyuan for us last summer, so let's start with that one:

millions of hardworking chinese are relocating monthly from the farms to the cities. [Xinyuan] creates habitats for people to live ... Small cities with schools, day care centers, hi-rise apts ... with a low P/E and hi growth already demonstrated, [Xinyuan] may prove to be the Chinese version of Pulte (NYSE:PHM), Centex (NYSE:CTX), etc,etc,etc,in the very near future.

(I presume fleecethegeese meant that as a compliment.)

albertwu7782 agrees. In another summer posting, he argued that: "This Chinese Real Estate developer ... has been a successful first mover in building apartments for the middle classes in China. It will continue to grow at a rapid pace as there is a heavy demand for housing right now in China." 

That sounds right, instinctively (we all know China's a big market), but are we sure that such demand really exists? Yes, actually. With 125,000 investors and counting, we're bound to have a few CAPS contributors who can offer firsthand experience with the companies they're rating. Volibolero, for instance, wrote in October:

Currently, I live in China. Homes are typically purchased with 30% down. In my opinion, there is very little 'artificial demand' created by easy money or leverage in the middle income housing market here. As a massive population shift is currently under way in China from rural to urban... housing demand is real, very large, growing fast, and difficult to stop. ... This creates an opportunity for the disciplined contrarian investor who can now buy a fast growing, operationally profitable firm for price just above cash per share and expected earnings per share and well below book value... in one of the largest future markets in the world.

Let's work up an appraisal
Personally, I don't know anything about investing in real estate developers. But I can do a basic compare-and-contrast exercise, which might add a little extra perspective for you.

Comparing Xinyuan to a few U.S. homebuilders -- Pulte and Centex, as fleece suggested above, and also DR Horton (NYSE:DHI) and Ryland (NYSE:RYL) -- a few statistics jump out at me. First and foremost, none of the American homebuilders is expected to turn a profit next year. Xinyuan is. And if it meets analysts' expectations of success, then right now, the stock's trading for less than six times next year's earnings, which sounds pretty cheap to me.

Furthermore, despite being profitable, and owning assets in a country where people are still buying houses -- neither of which its U.S. counterparts can boast -- Xinyuan's assets fetch a substantial discount relative to those of its U.S. peers. Right now, Xinyuan's shares command barely 0.5 times their book value; meanwhile, Pulte, Centrex, DR Horton, and Ryland carry multiples ranging from 0.6 to 0.9 times book value.

Time to chime in
Since I'm no expert in homebuilders, I can't objectively tell you that Xinyuan is an out-and-out bargain. But to my Foolish eyes, it sure looks cheap relative to just about any U.S. homebuilder you can name.

That's just my hunch. Surely there's someone out there who knows more about homebuilder stocks than I do. So what do you think about Xinyuan? Drop by CAPS and give us a shout.