Analysts Are Completely Wrong About These Stocks

Although there will always be differences of opinion, these are some of the CAPS community's most favored companies. So why does the professional analyst community look down on them?

Below we'll look closer at a handful of companies that CAPS members have bestowed the highest four- and five-star rating upon, meaning you think they have the best chance of outperforming the market. Yet Wall Street still can't muster up enough opinions to agree.

So who's got it right? The professional class of analysts, sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share. We've got an idea on who we think will come out ahead, how about you?

Source: Motley Fool CAPS.

Now as much as we love our CAPS community, don't invest in these companies just because they've garnered top honors. And don't sell just because Wall Street looks down on them either. Investing requires closer diligence on your part, so use these ratings as a launching pad for your own research.

A ray of hope
Maybe it's valuation or maybe it's the expiring contract with Ford (NYSE: F), but it seems those analysts thinking Stillwater Mining will underperform the market are missing the bigger picture here.

Admittedly, at around 75 times earnings, Stillwater ain't cheap, but companies moving from losses to profits often sport ridiculous looking valuations. That's the case here, with the palladium miner losing $0.10 per share last year, but now reporting $0.28 per share profit over the past 12 months. As precious metals pricing has gained traction again, those profits should continue to expand and valuations should normalize. Based on next year's earnings, for example, Stillwater goes for around 21 times earnings.

As for the contract with Ford, the miner believes there's plenty of demand in the market for its metals, far more than it can hope to produce. That should keep prices high benefitting it and its peers like North American Palladium (NYSE: NAP).

CAPS member WPThatcher thinks Stillwater, as one of the largest palladium miners, will respond nicely to bullish conditions in the commodities market. That no doubt echoes the sentiments expressed by the 492 community members -- 92% of the total -- rating the miner to outperform the market. You can tell us on the Stillwater Mining CAPS page whether its price is still too dear.

Ride that pony
Considering Elan is still posting losses, it's not necessarily the same valuation concerns that matters to analysts when looking at the drug maker, but more likely its dependency on sales of multiple sclerosis treatment Tysabri, for which it co-develops it with Biogen Idec (Nasdaq: BIIB). Elan markets it in the U.S.; Biogen markets it elsewhere, though it could gain full access if someone tried to buy Elan.

Tysabri accounts for three quarters of Elan's revenues, making it essentially a one-trick pony. While that makes it risky, patient growth has been strong with a 20% increase globally from the year ago period.

With more than 1,000 CAPS members weighing in on the drug developer, more than 92% have suggested it can put up market-beating numbers in the future. If it can shore up the rest of its drug pipeline, it can minimize the obvious risks of tying too much of its business to Tysabri.

Although investors indicate they think that is in the works, only you can decide if Elan is right for your portfolio. Add it to your watchlist and have all the Foolish news and analysis aggregated for you in a single place.

Construct an argument for growth
It's no surprise that housing's numbers remain abysmal. Although mortgage applications rose almost 6% last week, the four-week moving average was still heading down. Yet with mortgage rates being kept artificially low, it may be that refinancing is driving things higher.

That is undoubtedly the reason behind Simpson Manufacturing being held in such low esteem by Wall Street. It makes the metal connectors that tie rafters to beams and joists to studs, and is a key component of homebuilding construction codes. If housing was healthy, Simpson would surely be on every analysts "buy list." Analysts rank Home Depot (NYSE: HD), Simpson's largest customer, far more highly than they do the connector maker.

What they're missing here is the growing importance of the international building market to Simpson's bottom line. Sales in Canada and Asia grew in the third quarter while they were falling here in the U.S., but more importantly, income from Simpson's international operations assumed a much larger portion of continuing profits this quarter (19%) than they did a year ago (4%).

It's that whole thing about being written into the building codes that has PebbledsPicks awed by the moat Simpson has carved out for itself:

Simpson is a case study in moats. They have a huge array of products and customers, and many products are the No. 1 choice of engineers (sometimes the only choice) given strict building codes. The stock is not currently cheap based on where the industry has been recently, but stocks are not about the past they're about the future. New home construction has dropped off a cliff, and several people smarter than me think it's simply a matter of time before building picks up to meet historical demand for new homes.

Close
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