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 135,000-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. 6/26/09 price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street demonstrates an eclectic taste in stocks this week, as professional stock traders buy shares in everything from a Massachusetts telecom servicer (Atlantic), to a UK-based data storage company (Xyratex), to a U.S. scrap-metal recycler (Metalico) and finally to Chinese real estate (three guesses).

As far out as some of these ideas seem, CAPS members generally agree that these stocks will go far ... but only one of them's going to shoot into space ...

The bull case for OYO Geospace
Don't let the name Fool you. OYO Geospace's business isn't nearly as cosmic as it sounds. In fact, it's downright down-to-earth -- and even under. This Motley Fool Hidden Gems recommendation manufactures seismic equipment that helps oil majors like BP (NYSE:BP) more profitably locate and drill for oil and gas.

4thRockFool introduced us to OYO Geospace last April as a provider of: "seismic services that can help its clients get more oil out of existing fields." 4thRockFool argues that: "The recent slump in energy prices will not last - global economic growth will return and that will put continual upward pressure on energy prices for years to come. Even if prices fall further from here, OYOG's customers must continue to look for oil and gas or find another business model."

Around the same time, CAPS All-Star falcon2382 argued that OYO Geospace has at least two big things going for it: "[N]ot only has the products OYOG produces gotten better, but the ones from two, three, and certainly five years ago will need to be replaced soon." Falcon also likes the company's "insider purchasing record."

Nor is he alone. Fellow All-Star investor Beebzer recently became attracted to OYO Geospace after seeing an additional "large numbers of insider buys" in December and January. (In more recent weeks, we've seen OYO Geospace's CFO cashing out of stock options, however. But we've also seen the CEO start another buying spree.)

Trouble in the oil patch
Plummeting oil prices earlier this year helped to take OYO Geospace's stock price down with 'em. As a result, this profitable (but small -- much smaller than rival CGG Veritas (NYSE:CGV)) little shop sells for just 16 times trailing profits, despite consensus analyst estimates that predict 37% annual earnings growth over the next five years. Fools, this looks almost too cheap.

Low oil prices alone can't explain the extremity of OYO Geospace's apparent undervaluation, however. Every company has its flaws, and at OYO Geospace, the most serious issue I see is a pronounced lack of free cash flow. The company burnt through some $18 million in cash last fiscal year and has had trouble staying cash flow positive since 2004. That said, the company has reined in capital expenditures in recent quarters, with the result that it's finally within spitting distance of free cash flow-breakeven.

Also worth considering is that OYO Geospace sells for just a little more than its own book value. This could possibly suggest it could become a takeover target for a larger operator looking to fold in its technology and capture OYO Geospace's growth prospects on the cheap.

Time to chime in
Of course, that's just my opinion -- there's no guarantee that a buyer would agree, or that there even are any buyers out there with the economic situation looking so precarious.

So what do you say, Fool? Is OYO Geospace worth a gamble based on its valuation or its prospects for a buyout, either one? Or is this just another tiny dog of a cash-burner, doomed to flounder? Click on over to Motley Fool CAPS, and tell us what you think.

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