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?
Once upon a time, 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 the stocks that financial institutions buy and sell. And the 170,000-plus lay and professional investors on Motley Fool CAPS can lend us further 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:
(out of 5)
|Qihoo 360 (NYS: QIHU)||$22.45||*|
|Groupon (NAS: GRPN)||$18.02||*|
|Youku Inc. (NYS: YOKU)||$27.06||*|
|Zynga (NAS: ZNGA)||$13.03||*|
|Spectrum Pharmaceuticals (NAS: SPPI)||$13.05||*****|
Up on Wall Street, the professionals think these stocks are the greatest things since sliced bread. (And by "bread," I mean "money.") But with the majority being rated only a single star on CAPS -- and that's maybe only because we don't have a "zero-star" rating -- what can investors expect to get for their money if they follow Wall Street's lead and invest in these companies?
A lot of risk ... but maybe one big reward.
At 165 times earnings, Qihoo looks like your typical overpriced Internet stock. If analysts are to believed, Qihoo's supersonic, triple-digit long-term growth rate is fast enough to make it a buy. But not everyone's buying the hype. That includes CAPS member tombyang, who boldly proclaimed, "This company is likely to be kaput in another year or so."
Speaking of hype, widely touted 2011 IPO Groupon is down fully a third from its opening-day price. Unprofitable on a trailing basis and priced at almost 69 times the earnings that analysts hope to see this year, the stock looks overpriced -- even if it achieves the 29% long-term earnings growth for which Wall Street has it pegged. CAPS member cibient looks at these numbers and rates Groupon an underperform, "betting the fundamentals never catch up to the stock price."
Shifting back to China, we find the "Chinese YouTube" growing at 60%, or twice as fast as Groupon. Unfortunately, it's hard to say exactly what Youku might be growing, seeing as trailing 12-month profits remain decidedly negative. As for the future, CAPS member ta2122 argues that Youku "[n]ever has had income. ... Earnings move stocks, not charts."
And back stateside once again, we see another recent IPO, Zynga this time, tied with Groupon for a one-star CAPS rating -- but lagging badly on earnings. Rather, Zynga is more like Youku in this respect, showing seriously negative profits for the past 12 months. bossman5000's take: "Good luck getting out of Facebook's shadow -- only hope is online poker, which isn't gonna happen anytime soon."
But what's this we find here, at the bottom of the list? Could it be ... a profitable biotech start-up? Indeed it is, and one with a five-star rating on CAPS. So here is ...
... the bull case for Spectrum Pharmaceuticals
CAPS member em26jamie argues that with "2 profitable FDA approved drugs already ... 2 pipeline drugs set for approval by 2013 [and] 4 more in the pipeline behind them," Spectrum has a bright future ahead of it.
Near-term, AugieAugster believes, Spectrum's "Eoquin, first and foremost, is going to bring in $500M a year starting in 2013." (EOquin, or apaziquone, is a treatment targeting bladder cancer.)
And according to badomen,"[W]ith two profitable drugs increasing sales each quarter and three more attractive drugs expected to reach approval this year, [Spectrum] is one of the most attractive biotech stocks out there. Profits should rise each quarter as well as stock price, and the stock is a good acquisition candidate."
Wall Street seems to think so, too. According to S&P Capital IQ, the consensus of the five analysts following this stock is that Spectrum will see earnings rise this year, slip back in 2013 as clinical trial costs step up, then rise briskly over the next few years -- hitting $2.47 per share in 2016.
Foolish final thought
Not everyone's convinced Spectrum can hit this target. But if it does, this would work out to a 24% compound annual growth rate. For a stock that's already solidly profitable, and selling for 15.5 times earnings, and an enterprise value-to-free cash flow ratio under 15, that's a very nice price.
Maybe not every stock on Wall Street's buy list deserves a place in your Watchlist. But this one does.
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At the time this article was published Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 387 out of more than 180,000 members.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has adisclosure policy.