Wall Street's Buy List

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 130,000-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 traders are snapping up these stocks just as fast as they can click the "buy" button, but down here on Main Street, we're happy to be quit of 'em. Fact is, we don't like these stocks very much at all -- with one exception.

That would be Omniture, a Motley Fool Stock Advisor recommendation and the subject of today's column. Without further ado, let's jump right in and review ...

The bull case for Omniture 

• CAPS All-Star vprtwatcher introduced us to Omniture back in October as the "Recognised leader in web optimisation, benefiting from long term trend toward commerce moving online." This investor was particularly enthused by the company's "[r]ecurring business model ... with 50%+ organic growth and prospect for huge (non-GAAP) profit margin as the customer base grows."
  
• 50% growth in a recession?! Yes, indeedy. Fellow All-Star silentrumble argued in December: "This economic recession is not going to stop the migration of commerce to the web and [Omniture] is the strongest player in Web analytics. There will always be a need for companies to optimize their products for the consumer and these software products are ideally suited for this."
  
• Of course, there's still the matter of valuation to address. This one stumped another of our All-Star class, nonzerosum, who lamented a month ago that it's "Hard to judge fair value because there is no [free cash flow] or earnings, so I took EBITDA and deducted 50% for taxes and depreciation and got [fair value] around $27. I like that they're growing despite the recession and online stores will grow over the next 5-20 years."

While I generally agree with the above sentiments, I beg to differ with the last point in particular. While it's true that Omniture has no earnings of the GAAP variety, the company does indeed have free cash flow -- $23 million worth of the stuff generated last year alone. However, that number is still too low for my taste.

Make no mistake: Omniture is a quality outfit, and a worthy competitor to Web rivals such as Google (Nasdaq: GOOG), which now owns DoubleClick, and Microsoft (Nasdaq: MSFT), which swallowed aQuantive in 2007. Wall Street predicts 30%-plus growth out of Omniture for the next five years. But, after comparing that growth to the company's very real free cash flow, I find the resulting 39-times multiple of enterprise value to free cash flow more than a little frightening.

Time to chime in
Just because Omniture's valuation gives me the willies, doesn't necessarily mean that you should avoid the stock. Fact is, the team at Motley Fool Stock Advisor has high hopes for this company. Fact also is that Fool co-founders David and Tom Gardner have walloped the S&P 500's returns for years by picking stocks as improbably valued as Omniture appears to be today.

And that, really, is the beauty of The Motley Fool. It doesn't matter so much whether you love a stock or hate it. What matters here is the strength of your argument.

Copyright © 2008 Universal Press Syndicate.