Wall Street Loves These Stocks. Should You?
Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers all believe these companies will beat the long-term averages, well, surely they will -- right?
Not so fast! With help from the 180,000 members of Motley Fool CAPS, we'll see whether these highflying favorites deserve analysts' unwavering support.
CAPS Rating (out of 5)
CAPS Bullish Sentiment
Number of Wall Street Analysts
52-Week Price Change
|AEterna Zentaris (NAS: AEZS)||****||98%||8||9%|
|Qualcomm (NAS: QCOM)||*****||94%||43||25%|
Source: Motley Fool CAPS.
As you can see, there's a wide range of results, so just because Wall Street loves 'em, that doesn't mean you have to. Use the list as a jumping-off place for your own research.
No generic opportunity
Today's announcement that perifosine plus Xeloda failed to achieve the endpoint of a phase 3 trial is weighing heavily on AEterna Zentaris and Keryx Biopharmaceuticals (NAS: KERX) , both of which are trying to develop perifosine into a viable cancer drug. The X-PECT trial failed to do any better than Xeloda and a placebo at improving overall survival rates in colorectal-cancer patients. In premarket trading, shares of AEterna and Keryx were down more than 60% each.
Last month, shares of AEterna and Keryx soared -- then tumbled. It goes to show that not only is the regulatory agency's imprimatur not an easy thing to come by, but also that you shouldn't buy into the hype. Clinical tests are not over till they're over.
Investors, however, were warned before about the likelihood of perifosine's failure. Last year, Dr. Mark Ratain, an oncologist and professor at the University of Chicago, published a study in the Journal of the National Cancer Institute, which found that 100% of all phase 3 clinical trials of cancer drugs conducted by small biotechs like AEterna and Keryx failed. Examining 59 trials over a 10-year period, every single result was the same: failure. It might be something investors want to remember the next time they come across tiny companies proclaiming the next cure.
Wall Street had been unanimous in its opinion that AEterna would be successful, and Main Street wasn't that far behind, with only 8% of the CAPS members rating the biotech thinking it would underperform the broad market averages. While I had stayed away from weighing in on the stock because I thought it was something of a crapshoot whether or not it would succeed, I might just be willing to roll the dice next time and bet against a small-cap stock entering into late-stage trials, since the track record of disappointment remains unbroken.
Add AEterna Zentaris to your Watchlist to see whether there's a chance for it to bounce back from this debacle.
Going for the win
For a stock that's jumped 50% from its low point seven months ago, it may seem silly to think it's just getting ready to take off, but I think we're only just getting onto the runway of Qualcomm's real growth phase. As a chip provider for Apple's (NAS: AAPL) iPad (and it should be noted that some lay the blame for the new iPad 3's heat issues on the use of an older Qualcomm chip), it stands to gain handsomely from the tablet's runaway success.
Qualcomm's chips are also in just about every mobile communication device. Whether they're Android-based or reside in Research In Motion's (NAS: RIMM) BlackBerry, Qualcomm has a finger in the pie. So regardless of which platform ultimately wins the race, Qualcomm wins, too. Its new Snapdragon processor is also expected to be a winner, and the Gobi mobile Internet connectivity solution could see the looming iPhone 5 release as one that realizes the promise of an LTE version.
With Apple having just rolled out an LTE-capable iPad last month -- using Qualcomm's baseband chipsets -- it certainly seems feasible, particularly with Verizon and AT&T having upgraded their networks to the standard and Sprint Nextel scrambling to catch up (it guaranteed Apple $15 billion in iPhone sales, so it might be hoping for a later release rather than an earlier one).
It's this "finger in every pie" structure that has CAPS member Magnoliasteve agreeing that Qualcomm is ready to take off: "Riding the tech wave. Alliances with other key tech stocks will keep QCOM shareholders rolling for a while."
Once again, Qualcomm raised its dividend and announced a huge $4 billion share-buyback program in an effort to increase shareholder value, so add the chip giant to the Fool's free portfolio tracker and let me know on the Qualcomm CAPS page whether you think there's an altitude to which it can't ascend.
Agree to disagree
Tell us whether these stocks deserve to have Wall Street marching lockstep, and also check out some other companies benefiting from the smartphone and tablet revolution. You can read The Motley Fool's report on three hidden winners of the iPhone, iPad, and Android revolution to find out more. This report will be available only for a limited period. Get it before it's gone!
At the time this article was published Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Qualcomm and Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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