Wall Street Loves These Stocks. Should You?

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.

Stock

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
Tell us whether these stocks deserve to have Wall Street marching lockstep, and then check out The Motley Fool's new free report that highlights a company breaking all the rules on its way to huge, multiple-bagger gains. The report is free, so get a copy today!

Fool contributor Rich Duprey owns shares of Pfizer, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Novartis and Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2012, at 7:00 PM, dsandman999 wrote:

    The rate of applications for primary mortgages or refis is being artificially kept low by banks using various methods, but one I have personally experianced involves the fraud and malpractice of the apraisers banks use to lowball the value of a home. The rule changes awhile back now make the appraisers only beholden to the banks and they know a lower appraisal, especially one that make the borrower pay for mortage insurance and other LTV (loan to value) penalties is in the bank's best interests. Even many of the folks at the banks agree that the appraisals do not reflect what you could get on the open market especially in areas, like mine, that never had a housing recession.

    I had 2 appraisals done about 3 months apart - one as I finished a major remodling of the main house and a 2nd when finished converting the garage into a bedroom, batroom and new dinning room. About $150K total that including entirely replacing the plumbing and electrical work for the whole house to bring it up to "modern" code/standards. The original price was $145K in 1995 (not 2007). After converting the house from a 3 bedroom 2.5 bath to a 5 bedroom 3.5 bath, modernizing all the appliences, removing carpets, tiling floors, etc I ended up with a $215K appraisal. Before I finished the garage, I got one for $202K. Both appraisers claimed they could not find recent sales in my area of similar homes, so they took 3 bed room homes sold over the last 15 months and up to 5 miles away and "adjusted" for things like a bedroom for $5K and $22 a suare foot for the differences inside. This, even though they had sales prices of about $100/sq foot for the other homes. This did not include upgrades, just the basic counts and sizes. They both adjusted having a garage as worth $16K more. I could easily build the garage for $10K if I needed it. Good luck adding a bedroom for $5K. Then there are the string of erros on the pages. The first one I was not there for it so maybe it was an "honest" set (not 1) of mistakes. I was there for the second and remember distinctly mentioning the errors from before and yet those SAME errors showed up in the 2nd appraisal (totally different companys headquatered in different states, etc).

    The banks would still have been happy to do the deals as long as I was willing to bring $9K/$11K to the table and for a payment $200 a month higher than my current one and at a higher interest rate because Fannie guidlines tell them to charge 0.25% because of the low LTV (inspite of a 768 credit score and no debt beyond the house and a HELOC). Both banks expressed surprise when I decided not to do the deal (after spending $800 on the 2 inaccurate appraisals).

    I am thinking of sueing both banks and appraisers for malpractice, fraud and wire fraud. Why might I even conside this? Because a local realiter (litterally across the street and up 1 house) sent me a card proudly listing the 2 houses she managed to sell with the last year right on my road that matched my remodled and the coverted garage. Sold for $235K and $295K respectively. And they did not show on either report even though they had been sold 5 months and 8 monts before the apraisals. And my house was still better, even using that stupid federal/fannie uniform appraisal form, than those sold.

    Now back to the beginning of the end. You have taken a logical augument whith out checking your facts/figures and used assumption that sound good but would fail on further checking. Had you actually looked at the amount of agency paper out there and how much new was being produced and that the Fed actually has several hundred $Billion of it and needs to sell it at some point, you would realize that all the mReits together can't buy a significant portion of it. AGNC is issuing stock and reinvesting it in Agency paper. They are issuing it now because the paper exists and they are getting pretty good deals on it. Even filtering it for special criteria that they are using to mitigate/hedge prepay risk, they have plenty to choose from. They are also begining the slow deleveraging process. Their dividend will go down but become more stable. The 2 biggest threats to agency mREITs are the possible SEC regulations (which would reduce leverage and add more expenses for reporting and compliance), and the possible elimination of the Agencies in question (that would really dry up the products). Dividend investers are long term. The stability of the dividend over long perios is more inportant than increases in the stock or a small reduction in the dividend over the short term.

    I bought a large amount of my AGNC around $19.5 and I am 2 years away from a 100% payback in dividends not being reinvested, just straight payments. The current 1.35 dividend per quarter means I am making about 7% PER Quarter on those shares. Thier current price means that I could sell them and also lock in a ~9/share profit. But they are in an IRA and I have no intention to sell such nice interest paying stocks for a chance to buy riskier stocks that will not pay the big dividends. I have other dividend stocks like CIM that even with a 30% drop recently, are almost break even if i sold today because of the dividends. And I fully expect these stocks to be great deals for 3 to 5 more years.

    As to how annoying it is that AGNC keeps issuing shares, I am irked that they issue them for 5% less, but my annoyance is more that I do not have several $K available to invest in the IPO and the payout date for the current dividend is usually long after the IPO. Yes, I am jealous...

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