Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers all believe these companies will beat the long-term averages, well, surely they will -- right?
Not so fast! With help from the 180,000 members of Motley Fool CAPS, we'll see whether these highflying favorites deserve analysts' unwavering support.
CAPS Rating (out of 5)
CAPS Bullish Sentiment
Number of Wall Street Analysts
52-Week Price Change
|American Capital Agency (Nasdaq: AGNC )||****||96%||7||22%|
|Curis (Nasdaq: CRIS )||***||94%||6||36%|
Source: Motley Fool CAPS.
As you can see, there's a wide range of results, so just because Wall Street loves ' em doesn't mean you have to. Use the list as a jumping-off place for your own research.
No generic opportunity
We may be seeing the end of the run for residential mortgage REITs like American Capital Agency, Hatteras Financial, and ARMOUR Residential REIT (NYSE: ARR ) . Despite being hampered by Federal Reserve policy decisions like "Operation Twist" that artificially kept interest rates low and encouraged borrowers to refinance at lower rates, the REITs were still able to capitalize on the spread between what they borrowed (also kept low by the Fed) and what they invested.
Now, however, Mortgage Bankers Association application data was just released, and it confirms a disturbing trend: Mortgage applications continue to fall. MBA Mortgage Application data plummeted 7.4% last week, following a 2.4% drop the week before, marking the sixth consecutive week of declining applications.
Although the paper that American Capital and other mREITs carry may stabilize as a result of slower prepayments while refis fall for the fifth straight week, the decline in applications is an indication that the landscape is changing for the worse, and fewer investment opportunities will become available for the REITs. They benefit from mortgage volume, particularly as new securitizations of agency-guaranteed residential mortgage-backed securities provide opportunities for portfolio reinvestment.
Interest rates may be moving higher (they were up 50 basis points last week), but it's hardly causing borrowers to run and lock them in. This isn't the recovery everyone was hoping for.
CAPS member MRBillsnutjob also wasn't enamored of the recent offering American Capital did: "They have repeatedly released more stock offerings [with] each time about 20% more floating shares for sale which dilutes earnings and eventually [shareholder equity]. The most recent is the second of such offerings."
I'll also be rating the mREIT to underperform the market, but tell us in the comments section below or on the American Capital Agency CAPS page what you think of the latest data, then add it to your Watchlist to see how it plays out.
Going for the win
Earlier this year, Roche's Genentech and Curis gained FDA approval for their basal-cell carcinoma drug, Erivedge (vismodegib), and a pricing of $7,500 a month over 10 months makes it expensive, but less so than other recently approved cancer treatments from Bristol-Myers Squibb (NYSE: BMY ) and Dendreon, and it perhaps keeps critics of overpriced drugs at bay for the time being.
Curis got a $10 million milestone payment for its efforts and will receive royalties on sales, and being approved means the therapy is first to market, ahead of Bristol-Myers, Pfizer, and Novartis (NYSE: NVS ) , which are all working on the same "hedgehog" protein pathway it exploited. Named for the gene's bristled appearance, the protein's abnormal signaling is implicated in more than 90% of basal cell carcinoma cases.
Look for Curis' stock to build on its success. Last year there was a lot of fanfare (and some consternation) over approval of Bristol's Yervoy and Roche's vemurafenib, which treat melanoma, something that's responsible for less than 5% of skin cancers. Erivedge, however, addresses the most common type of skin cancer, with more than a million new cases diagnosed every year in the U.S. alone and accounting for 80% of all non-melanoma related skin cancers. There's a big market to address.
CAPS member irishred1 expects approval for other indications to materialize for Curis, if not buyout offers as well: [Will probably] raise cash again, but newly approved drug is easily expandable to other types of cancer...just waiting results. [Has] other drugs in the pipe and not an unreasonable acquisition target either."
Add Curis to the Fool's free portfolio tracker to see whether there are broader horizons ahead.
Agree to disagree
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