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." The pinstripe-and-wingtip crowd is entitled to its opinions, but we have some pretty sharp stock pickers down here on Main Street, too. And we're not always impressed with how Wall Street does its job.
So 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.
Piper plays down Teva
Bad news for Teva (Nasdaq: TEVA ) shareholders this week: Piper Jaffray hates your stock.
Well, not "hates," exactly, but the Wall Street banker certainly seems less enthusiastic about Teva than it once was. In a report released Monday, Piper argued that the threat from generic versions of Copaxone made by Novartis (NYSE: NVS ) and Mylan (NYSE: MYL ) is growing, while at the same time Biogen Idec's (Nasdaq: BIIB ) new BG-12 drug may soon steal away market share from Teva's multiple sclerosis drug: "strong data for Biogen Idec's BG12 [raises] doubts regarding the long-term future of Copaxone." As such, Piper worries that investors will be cool to Teva's prospects for at least "the next several months -- making the stock a short-term hold at best.
But what about investors looking at Teva as a longer-term investment? Should we be worried, too?
Let's go to the tape
Honestly, I don't think so. And I'll tell you why: I don't mean to be mean or anything, but ... to be perfectly blunt ... Piper simply isn't a very good at picking drug stocks. According to our CAPS records, about 56% of Piper's picks underperform the market -- and by an average of 17 percentage points per pick! Some of these losses are modest in size, granted. Others are real whoppers -- like Piper's 2009 recommendations of Medicis (NYSE: MRX ) and Valeant Pharmaceuticals (NYSE: VRX ) , lagging the S&P by 92 percentage points, and 245 points, respectively.
Speaking of whoppers, you may not remember this, but just a couple of years ago Piper was playing an entirely different tune about Teva. Praising the prospects for Copaxone, and pooh-poohing the risks of generic competition, Piper called Teva "a top long-term health care holding in our opinion."
"Teva's on sale," you say? No thanks
Now back when Piper was singing Teva's praises two years ago, I criticized the pick, arguing that Teva was overpriced at $52 a share. I was right, by the way. Over the past 12 months, Teva shares have lagged the Dow Jones Industrial Average (INDEX: ^DJI) by more than 30%. Teva now costs $40. But still, I have to wonder ... If Piper liked Teva $12 ago, and it called the stock a "long-term health care" pick, then shouldn't Piper like Teva even more now that it's $12 discount?
I know I do.
Priced at 11 times earnings today, and paying a 2% dividend, Teva is at worst fairly priced for future growth expectations today. When you consider further that Teva today generates free cash flow of well over $3.6 billion (as opposed to the less than $3.2 billion in "net income" that most investors focus on), I'd argue that Teva is actually a bit cheaper than it looks.
Seems to me, Piper is picking exactly the wrong time to throw in the towel on Teva.
How serious a threat do Biogen Idec, Mylan, and Novartis pose to Teva? Follow the links to add each stock to your Fool Watchlist, and see how the competition develops:
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