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.
CAPS Rating(out of 5)
|SandRidge Mississippian Trust I (NYS: SDT)||$25.06||*****|
|American Capital Agency (NAS: AGNC)||$27.27||****|
|Spectrum Pharmaceuticals (NAS: SPPI)||$8.16||****|
|Neoprobe (NAS: NEOP)||$2.95||*|
|VirnetX Holding (NYS: VHC)||$20.83||*|
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.) They've been ...
- Risking vertigo by hopping back on the VirnetX rollercoaster, in hopes that this two-bagger software concern is headed back into three-bagger territory.
- Betting big that Neoprobe will win FDA marketing approval for Lymphoseek next month.
- Speculating on Spectrum Pharma ahead of Thursday's 2011 Healthcare Conference.
- Seeking guaranteed yield in an uncertain world at American Capital Agency.
Nor do I blame them. While CAPS investors generally agree that American Capital and Spectrum are good bets, they're considerably less sanguine about the prospects at Neoprobe and VirnetX. A little security in the form of a monster dividend yield must be pretty attractive, to hedge against big risks in Little Pharma if for no other reason. But speaking of yield, have you noticed the top stock on today's list? It's another big yielder ... not that you'd know this from Yahoo!, which doesn't even have a rundown of the company's key statistics online yet!
The dearth of information doesn't seem to be scaring away Wall Street, or mainstream investors, either. What is it, though, that so many investors find so attractive about the oddly named SandRidge Mississippian Trust I? Let's find out.
The bull case for SandRidge Mississippian Trust I
CAPS member jaymzrex tells us that the "Mississipian Trust [is] ready for exploitation, drilling horizontals in traditional reservoir for higher payout." Our CAPS member continues: "Only 43 out of 159 locations producing. ... Plus this is a leveraged play on the price of oil, which is most definitely going higher from here."
And SDT's role in this exploitation? According to RetiredAt37 (congratulations!), all this company does is "simply takes the cash from oil wells."
How much cash, you ask? All-Star investor bpostma answers: "the dividends will be over $2.50/share/year."
Should you trust SandRidge Mississippian?
And perhaps way over. SDT, you see, is more than just a way for parent company SandRidge Energy (NYS: SD) to raise cash to invest in drilling in more promising places. It's also a heap-big dividend play for the investors who took it off Papa SandRidge's hands. While Yahoo! doesn't have much data on the company as of yet, the folks at Capital IQ do. We've gleaned a few vital statistics from this, The Motley Fool's favorite data provider.
First off, SDT doesn't look like much of a bargain. The stock sells for around 31 times earnings, after all. But then again, P/E was never the reason to own this stock in the first place. SandRidge Mississippian Trust I, you see, is a dividend royalty trust, meaning it has existing wells to work, and you can "trust" that it will pay you monster dividends out of the cash it makes from them. Currently, Capital IQ put the yield on this stock at 17.1%. That's several times the average dividend yield on the Dow Jones Industrial Average (Index: ^DJI), where yields "average" 2.7%. And most analysts expect SDT to grow its earnings, and presumably its dividends, quite handily over the next five years, at the rate of about 11% per year.
Time to chime in
And it gets better. Back in May, fellow Fool Dan Dzombak went even farther, explaining that SDT management has "guaranteed" that it will pay dividends peaking at $2.70 per share in 2014. In all likelihood, dividends could be even higher than that, running from $2.31 per share this year all the way up to $3.36 per share in 2014. Granted, dividends (both "guaranteed" and not) are expected to drop off the following year, but right now, estimates suggest that SDT's dividends alone should repay you nearly 60% of the cost of a share of SDT between now and 2015.
Is that a big enough promise to convince you to buy a 31 P/E stock? Head over to Motley Fool CAPS now, and tell us what you think.
And just in case the yield on this one is not big enough for you, we have a free report out on 13 other dividend stocks you might like, titled "13 High-Yielding Stocks to Buy Today." Hundreds of thousands of Fool readers have requested access to this special free report already, and you can access it today at no cost. Get instant access to the names of these 13 high yielders -- it's free.
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. 397 out of more than 180,000 members. We Fools don't 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.
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