At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." While the pinstripe-and-wingtip crowd is entitled to its opinions, we've got some pretty sharp stock pickers down here on Main Street, too. (And we're not always impressed with how Wall Street does its job.)
Given this, perhaps we shouldn't be giving virtual ink to "news" of analyst upgrades and downgrades. And we wouldn't -- if that were all we were doing. Fortunately, in "This Just In," we don't simply tell you what the analysts said. We also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
BMO makes biotech recs
Over the five years that we've been tracking the performance of BMO Capital Markets, the analyst has shown itself to be a proficient stock picker. According to our records, BMO outperforms 91% of the investors we track, gets the majority of its stock picks right, and beats the market by better than four percentage points per pick, on average. That's great news for biotech investors, for as of this week, BMO has returned to the biotech market.
Big time.
On Wednesday, this ace investor initiated coverage of a whopping 20 drug and biotech stocks. Granted, eight of the companies (Gilead Sciences (Nasdaq: GILD ) , Arena Pharmaceuticals (Nasdaq: ARNA ) , Amylin, Onyx, ZIOPHARM, NPS Pharma, Array BioPharma, and Synta Pharma) received what are essentially "no-preference" ratings of "market perform," and two more, Biogen Idec and Genomic Health, got tagged "underperform."
But BMO also gave us a whole list of good stock ideas to choose from: Amgen (Nasdaq: AMGN ) and Human Genome Sciences (Nasdaq: HGSI ) . Ariad (Nasdaq: ARIA ) and Celgene (Nasdaq: CELG ) . Regeneron and Rigel Pharma. United Therapeutics (Nasdaq: UTHR ) , Isis, Halozyme, and Cardiome Pharma. Truly, a plethora of biotech riches -- but which will make us rich-est?
With so many stocks to choose from, I thought it might be helpful to run down the list with a few key stats, to give you a better picture of where the stocks stand, and which one(s) might be best positioned to earn you a little profit:
|
Company
|
Price-to-Sales Ratio
|
P/E Ratio
|
5-Year Projected Growth Rate
|
|
Amgen
|
3.3
|
11.5
|
7.4%
|
|
United Therapeutics
|
3.8
|
19.3
|
56.4%
|
|
Celgene
|
6.4
|
27.6
|
23.3%
|
|
Cardiome
|
6.8
|
350
|
28.0%
|
|
Isis
|
7.3
|
NM
|
NM
|
|
Rigel
|
7.7
|
NM
|
NM
|
|
Regeneron
|
14.2
|
NM
|
NM
|
|
Halozyme
|
17.5
|
NM
|
NM
|
|
Human Genome
|
18.6
|
NM
|
NM
|
|
Ariad
|
690 (!)
|
NM
|
NM
|
All data courtesy of finviz.com. NM = not meaningful due to negative earnings.
As you can see, several of these companies are still in the "speculative" range. Human Genome Sciences, for example, had sales of just $123 million last year. Isis, just $101 million. Rigel, Cardiome, and Halozyme -- even less than that. And little Ariad is just getting started in this big, brave world of high-tech medicine, with less than $2 million in sales to its name.
But even beaucoup sales don't guarantee viability. Regeneron, with $460 million in annual sales to its credit, still isn't earning a profit. If we're looking for a BMO-endorsed company with at least some predictability to its future, I think we've really got just three choices.
Amgen
Amgen looks to be BMO's most promising slow-growth candidate. It boasts the lowest price-to-sales ratio on the list, a very reasonable P/E ratio, and respectable, if not wildfire, growth expectations. On the flip side, any tick upward in Amgen's growth prospects could make these shares catch fire.
Celgene
Climb the growth ladder just a bit, and we find Celgene sitting pretty. Its P/S ratio looks a bit steep, but 28 times earnings doesn't seem too unreasonable a price to pay for 23% long-term earnings growth. Plus, Celgene is already generating free cash flow superior to its reported net income -- meaning this stock is even cheaper than it already looks.
United Therapeutics
If you're looking for a biotech that's truly tearing up the track, look no further than heart drug specialist United Therapeutics. At just 3.8 times sales, the stock seems almost as cheap as Amgen. Plus, for PEG ratio enthusiasts, the attraction of buying a 20 P/E stock with a 56% growth rate is undeniable. Best of all, United Therapeutics churned out more than $230 million in free cash flow over the past 12 months -- well over its $140 million in "net profits."
Foolish takeaway
With a cash-rich balance sheet, a cash-generating business, barnburning growth and an attractive valuation, United Therapeutics looks to be the very best idea BMO came up with this week. I'd give it a very close look if I were you. In fact, I think I'm going to take a close look at investing in this one myself.
If you want to learn more about United Therapeutics -- or Celgene or Amgen, for that matter -- here's a way to make the job easier on yourself. Click below to add each stock to your Fool Watchlist:
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