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Wall Street's Buy List

By Rich Smith - Updated Apr 6, 2017 at 10:13PM

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Actions speak louder than words.

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?

Once, we didn't know what the bankers were up to. Now, thanks to the folks at finviz.com, it's easy to keep tabs on what stocks financial institutions are buying and selling. The 170,000-plus lay and professional investors on Motley Fool CAPS can also lend us insight into whether these decisions make sense.

Here's the latest edition of Wall Street's Buy List, alongside our investors' opinions of the companies involved:

Company

Recent Price

CAPS Rating
(out of 5)

Excel Maritime (NYSE: EXM) $3.91 *****
RAIT Financial Trust (NYSE: RAS) $2.49 ****
China Natural Gas (Nasdaq: CHNG) $5.69 ***
Lifeway Foods (Nasdaq: LWAY) $9.88 **
Quepasa (Nasdaq: QPSA) $7.72 *

Companies are selected from the "Institutional Ownership Up Last Month" list published on MSN Money after close of trading on Friday. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Wall Street vs. Main Street
Up on Wall Street, the professionals think these five stocks are the greatest things since sliced bread. (And by "bread," I mean money.) Problem is, there's a big difference between an artisanal loaf of Asiago-whole wheat and a loaf of Wonder Bread. Over the past month, the Street has been:

  • ... piling aboard a sinking ship at Excel Maritime (down 40% this past year) ...
  • ... putting their faith in RAIT Financial Trust (and its 2.2 P/E ratio) ...
  • ... taking a page from the Obama playbook and voting for CHaNGe ...
  •  ... drinking in shares of Lifeway (an old favorite of mine) ...
  • ... and buying up shares of Facebook wannabe Quepasa.

Of course, with the exception of Quepasa, each of these stocks has actually lost money over the past 52 weeks. So ... has the Street gone muy loco? Or is these stocks truly worth buying?

The bull case for Excel Maritime
Polling the CAPS community, we find that investors give high marks to only two stocks on this week's list: Excel Maritime and RAIT Financial. Personally, I'm less than thrilled with RAIT, which last year reported $112 million in profit but brought in barely $15 million worth of operating cash flow. In contrast, Excel Maritime seems to have some merit as an investing idea.

As CAPS member timclaason points out, "the BDI is at historically low levels, and is sure to rebound once Japan's building efforts go into full swing, along with China's shift in import source. I believe this stock was undervalued at $4.50, and I still think it's undervalued in the high $3s."

As fellow CAPS member sniggity explains, "Dry bulk stocks have taken a beating due to speculation over excess supply of capesize vessels. However, [Excel] derives about 40% of its revenue from long-term profitable contracts with clients, the first of which will not expire until 2013. This will not stop earnings from diminishing, but will insulate the company against the decreased demand for shipping that is materially affecting its competitors." And indeed, if you ask hollywoodoo, he agrees that a "turaround is imminent."

Time to chime in
As for myself, I find it difficult to call the highs and lows of any market. But "imminent" or not, I do believe this ship will turn around eventually. Consider: At a trailing P/E of less than 1.3, Wall Street is currently pricing Excel Maritime to go under any day now -- and not just Excel. From Genco Shipping (NYSE: GNK) to DryShips (Nasdaq: DRYS) to Eagle Bulk, pretty much every stock in this sector has been wrecked, with P/Es running from as low as 2.0 to as "high" as just 7.8. And yet, the average analyst expects Excel, at least, to limp along with at least 5% average annual earnings growth over the next five years.

Granted, Excel's "1.3" is an absurdly low P/E, and perhaps you doubt the accuracy of the number. But even if you distrust GAAP accounting, a glance at Excel's cash flow statement is sufficient to show that while not generating precisely as much cash as net income, Excel did at least generate $65 million in real free cash last year. To my mind, the resulting price-to-free cash flow ratio of 5.1 suggests that a 5% growth rate is at least sufficient to justify the stock's price.

Of course, if you disagree with me -- that's fine, too. At Motley Fool CAPS, all opinions are welcome. What's yours?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

DryShips Inc. Stock Quote
DryShips Inc.
DRYS
Genco Shipping & Trading Limited Stock Quote
Genco Shipping & Trading Limited
GNK
$15.31 (6.32%) $0.91
Lifeway Foods, Inc. Stock Quote
Lifeway Foods, Inc.
LWAY
$5.21 (1.56%) $0.08
China Natural Gas, Inc. Stock Quote
China Natural Gas, Inc.
CHNGQ

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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