When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible upside outweighs its risks. Let's take a look at Exelixis (NAS: EXEL) today and see why you might want to buy, sell, or hold it.
The company is a biotechnology concern, focused on developing treatments to fight cancer.
Its focus on cancer is enough to get investors excited; after all, it's an all too common disease. But there are many different types of cancer, and some are more prevalent (and thus, crassly, more profitable) than others. And as any penny-stock investor can tell you who's been burned taking a flyer on a company hyped as a cancer curer, it's not enough to be trying to cure cancer.
Exelixis isn't a fly by-night penny-stock scam, though. It has a prostate-cancer drug deep in development, called cabozantinib. The FDA recently denied Exelixis' special protocol assessment request for its phase 3 trial, but the company is continuing its current study anyway, hoping for outstanding results. It's also starting a phase 1 trial of a combination of cabozantinib and abiraterone.
Meanwhile, though the drug isn't yet approved for prostate cancer, it has been shown to be very effective against medullary thyroid cancer, and better still, it faces little competition there right now. AstraZeneca (NYS: AZN) has a medullary thyroid-cancer drug, but it's meant for earlier stages of the disease.
On the plus side for the company is that it reported positive net earnings in its past two quarters and in its fiscal 2011 -- after many losses. It also has a respectable cash pile, so it's not going to run out of funds in the near future.
Another reason some are thinking about buying the stock is that it has fallen so much and can look like a bargain. The stock was recently near $5.60 per share and has topped $12 during the past year.
Some are also interested in buying Exelixis because of speculation that it might be bought out.
Finally, if you put a lot of value in stock-guru picks, it's auspicious that Wall Street's Stifel Nicolaus has rated Exelixis a "buy," as the firm is among the best stock pickers.
For most of the reasons to consider buying, though, there's a reason to consider selling, or at least holding off.
Excited about the dropped price? Fallen stocks can still fall further. Excited about drugs in clinical trials? Trials can offer a lot of promise, but they can also lead to disappointment. They're birds in the bush, not in the hand. Excited by recent profitability? That's certainly encouraging, but it was the result of a large licensing payment. Net losses are expected to resume in the coming quarters -- in fact, they're even expected to accelerate for a while. Excited about a possible buyout? Well, buyouts do often deliver a premium price bump to a stock, but they also sometimes never happen.
You might also just want to wait. You might wait for Exelixis to win approval for cabozantinib to treat prostate cancer, or for it to gain quick-form approval to treat the disease's pain, such as for patients who already failed Sanofi's (NYS: SNY) Taxotere, Johnson & Johnson's (NYS: JNJ) Zytiga, or Dendreon's (NAS: DNDN) Provenge.
You might wait for the company to remain more reliably in the black, too.
I'm going to hold off on Exelixis for now. It's certainly intriguing, and it holds a lot of promise, but there are plenty of compelling stocks out there.
At the time thisarticle was published Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, owns shares of Johnson & Johnson, but she holds no other position in any company mentioned. Check out herholdings and a short bio. The Motley Fool owns shares of Dendreon, Exelixis, and Johnson & Johnson.Motley Fool newsletter serviceshave recommended buying shares of Exelixis and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.