However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 286 stocks listed under "drugs" in the CAPS' screener, of which less than 17% carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the following.
CAPS Rating Today (out of 5)
52-Week Price Change
Estimated 5-Year Growth Rate
|Eli Lilly (NYSE: LLY )||****||$38.86||11%||(4%)|
|Hi-Tech Pharmacal (Nasdaq: HITK )||*****||$38.97||53%||(6%)|
|Illumina (Nasdaq: ILMN )||****||$29.73||(53%)||18%|
Source: Motley Fool CAPS.
International and financial worries are again gripping the market, but with the S&P 500 up just 3% over the past 12 months, it's surprising to learn that CAPS drugs stocks have done worse, falling almost 4% in that same time span. So let's take a closer look at why investors think some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.
Look out below
The numbers for pharmaceutical giant Eli Lilly don't look encouraging. Where Pfizer (NYSE: PFE ) lost patent protection on Lipitor at the end of last month, the drugs Lilly has that are going off-patent between now and 2014 account for more than half its revenues over the next few years. That's why they made the phrase "patent cliff." And in the next few years, Lilly will fall over it.
Or at least that's the conventional wisdom. But it suggests that the company remains at a standstill doing nothing. Yet Lilly has dozens of drugs in some stage of clinical development, and one analyst recently noted that its Alzheimer's drug solanezumab could cause shares to jump 50% to 100% if it's as successful as early trials suggest. Treating Alzheimer's is tricky, to be sure, but all of the risk seems priced into Lilly's stock, which trades at a big enough trailing P/E discount to Merck (NYSE: MRK ) , GlaxoSmithKline, and Bristol-Myers Squibb -- all of which face a loss of patent protection (though not as steep as Lilly) -- to make it interesting.
More than 1,300 CAPS members have weighed in on the pharma giant, and 94% see it being able to outperform the market averages. Add Eli Lilly to your watchlist to see how this cliffhanger turns out.
Thumbing its nose
Generic-pharmaceutical maker Hi-Tech Pharmacal continues to see strong results from its fluticasone propionate nasal spray, which helped the company's generic-drug sales jump 33% in its fiscal second quarter.
Not surprisingly, its branded-drug division, ECR Pharmaceuticals, saw sales tumble 26% after the FDA yanked cold remedy Lodrane from pharmacy shelves for not having gone through its approval process. The decision came despite Lodrane's 50-year history of effectiveness.
Shares of Hi-Tech have soared as sales of the nasal spray keep on growing, now accounting for about half of its revenues. But it's also enjoying growing sales of several other generics that have high margins attached to them, which should allow profits to expand further.
The stock dropped sharply after the earnings report -- surprising, since the company beat analyst profit expectations by $0.27 -- but is still well ahead of Par Pharmaceuticals and Mylan (Nasdaq: MYL ) , both of which are in negative territory for the year.
CAPS member MajorBob04 expected a bounce after the earnings report, but if it keeps growing sales and earnings the way it has, Hi-Tech ought to return to its winning ways. Let us know on the Hi-Tech Pharmacal CAPS page whether you'd turn up your nose at this generic-drug maker, and add the stock to your watchlist.
It's in the genes
Federal research spending could be cut, and both Illumina and Affymetrix (Nasdaq: AFFX ) are feeling the effects of the outlook. As leading providers of DNA microarray technologies for genetic research, they're bellwethers of where the money is heading. And looking at their stocks, you'd have to say the money is heading away from the two of them -- both have been cut in half from their 52-week highs.
Some are speculating that Illumina may be scooped up by some larger company, such as GE or Siemens, but analysts discount such rumors, thinking that if there is still opportunity in the business, management won't want to sell. A hostile bid, of course, could bypass that intransigence, and despairing investors might be willing to cash out.
But the future isn't all cloudy for Illumina. It's helping to build new research facilities, it's still making acquisitions to expand its base, and it has a new deal in place with none other than Siemens itself.
ILMN with their connection to research and academia is the typical company to which stimulus dollars went. I know because I am connected to academia and I work on research, and I saw a lot of scrambling then to hire and increase capacity in order to spend stimulus dollars. Now the [stimulus] is gone and the economy is not growing. Add to that the coming cuts and you have a recipe for liquidation.
Follow its developments by adding the stock to the Fool's free portfolio tracker, and see whether someone comes in and buys out the geneticist.
The ball's in your court
There are many factors that go into whether a stock is a buy or sell, so it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Head over to CAPS today, and share your thoughts with other investor analysts on whether you think these stocks are ready to bound higher.