To whom should you listen when researching a stock, Wall Street or Main Street? Wall Street has its analysts and they don't have a good track record. They are known to be short-sighted, overoptimistic, and never negative. Savvy investors read their research but ignore their buy and sell ratings. So whom can you trust?
At Motley Fool CAPS we use the collective opinion of 165,000 investors to inform our stock ratings. Members are scored on their accuracy and overall outperformance of the S&P 500. We then aggregate all the ratings so that members with higher scores have more influence on a stock's CAPS rating. This gives us some of the best ratings around.
Let's look at a few pharmaceutical stocks CAPS investors think are cheap:
Stock |
Analysts Buy Rating
|
CAPS Rating
|
2010 Expected P/E |
P/B |
---|---|---|---|---|
Pfizer |
4.0 |
**** |
6.7 |
1.3 |
Merck |
4.1 |
**** |
10.4 |
1.9 |
Somaxon |
5.0 |
** |
N/A |
2.0 |
Source: Yahoo! Finance.
^The Yahoo! analyst rating numbers have been converted to align them with CAPS ratings, so that both run from 1 (worst) to 5 (best).
P/E = price to earnings. P/B = price to book value.
Pfizer has been beaten down by worries about its acquisition of Wyeth going poorly and the unknown effects of health-care reform. As long as its acquisition goes well, and large acquisitions have a history of not going well, this will be a long-term winner. With a 2010 price-to-earnings ratio of just 6.7, the downside is more than factored into the stock's price. It may increase its dividend, which currently sits at $0.72, as it pays down the debt it took on for the acquisition.
Like Pfizer, Merck made a large acquisition (Schering-Plough) to strengthen its pipeline last year. This helped the company mitigate patent expiration fears plaguing companies such as Eli Lilly
Somaxon sleep aid Silenor was approved this past March, which explains that huge jump in the above chart. It has tough competition, however, in the $2 billion insomnia market dominated by sanofi-aventis'
Is this a good time to hop on the Big Pharma bandwagon, or do other companies such as Somaxon catch your eye? Let us know in the comments box below!