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 agree that 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 high-flying favorites deserve analysts' unwavering support. Just because Wall Street loves 'em doesn't mean you have to. Analyst sentiment is just the jumping-off place for your own research.

Smaller is bigger
Investors in Keryx Biopharmaceuticals (Nasdaq: KERX  ) at least know where they stand right now and have better insight into how their fortunes will fare. After shares plunged following the late-stage trial failure of perifosine -- the colorectal cancer treatment it and AEterna Zentaris were developing -- to perform any better than a placebo, it gave the drug back to AEterna to develop it further for multiple myeloma and will receive some royalties if that biotech ends up doing anything with it.

Keryx will focus its attention on its other drug, Zerenex, a therapy for patients with end-stage renal disease who suffer from elevated phosphate levels. There's much more likelihood for success here than there was with perifosine, which had a spotty history though its end-market target was much larger than what Keryx can expect from Zerenex.

Yet success with a smaller opportunity is preferable to failure with a larger one, and positive results in Japan from Zerenex can give investors hope they'll be able to realize a return on their investment from Keryx's current levels.

The half-dozen Wall Street analysts rating the biotech on CAPS are unanimous that it will be able to beat the market averages going forward, and even the broad CAPS community is upbeat, with 92% of the 402 members who've rated it seeing it coming out ahead. NHWeston102 admits there's still risk here, but thinks it has a chance to also get bought out considering the heady M&A climate in the space:

A badly wounded stock but not without assets and dirt cheap at a time when the big pharmas are snapping up little companies like [Keryx]. You're rolling the dice here, OK, but there's a real chance of a double.

Let us know on the Keryx Biopharmaceuticals CAPS page or in the comments section below if you think it'll see success with Zerenex or if it will be a successful acquisition target. Then add the stock to your watchlist to be kept up to date on what happens.

A company with drive
Probably more than other hard-drive makers, Seagate Technology (NYSE: STX  ) benefited from the floods in Thailand last year, giving a new twist to the old saw that a rising tide raises all boats.

While Western Digital (NYSE: WDC  ) , whose facilities were flooded, ended up profiting because of rising prices in the wake of the shortages stemming from supply chain disruptions, Seagate was able to keep its customers supplied, nailed down long-term contracts from others who wanted to make sure they wouldn't be shut out in the future, and enjoyed the higher profits that came from the elevated pricing environment.

Although analysts fear that Western Digital and Seagate won't command the same pricing power now that equilibrium has returned to the industry, with them owning 90% of the hard-disk drive market, the virtual duopoly suggests margins won't slip too far. Admittedly, Seagate was late in getting into the solid-state drive business and has some catching up to do in a market dominated by more experienced players like Fusion-io (NYSE: FIO  ) , STEC, and OCZ Technology (NYSE: OCZ  ) .

At just seven times trailing earnings and three times estimates, Seagate seems to me to be exceptionally cheap (Western Digital commands equally ridiculous depressed valuations). As CAPS member and fellow Fool Rich Smith (TMFDitty) highlights, it's an inexpensive stock all around: "Low P/E, nearly as-low P/FCF, and superb growth prospects for this make of hard-disk drives. SSD may be the wave of the future -- but this stock has a solid presence in the present."

They may not be unanimous like Wall Street's 16 analysts, but the CAPS community is solidly behind Seagate's ability to regain ground, with 92% of those rating the drive maker marking it to outperform the market indexes. Add Seagate Technology to your watchlist to see how solid of an investment this is.

Agree to disagree
Some technology trends work in favor of the big and cheap hard-disk drives that are Seagate's forte, but in a special report available for free, you'll find the only stock The Motley Fool says you'll need to profit from the new technology revolution in big data and business intelligence. The report is totally free, but it won't be available much longer, so get your copy right away.

Fool contributor Rich Duprey owns shares of Seagate Technology but does not have a position in any of the other companies mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Western Digital and Fusion-IO. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (1)

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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 May 16, 2012, at 10:23 AM, assisgnmeaname wrote:

    Re STX: "They may not be unanimous like Wall Street's 16 analysts, "....huh?

    There are many analysts that don't have a buy or strong buy on STX. Noble just put a sell on it. I think the stock is a buy myself, but I hate it when Motley Fool makes erroneous declarations, and wanted to point out the mistake.

  • Report this Comment On May 16, 2012, at 11:24 AM, foolsORliars wrote:

    Fio is a pump and dump with poor sales?

    Dude, you're crazy....Fusion I-o is posting crazy sales numbers to more companies than just Facebook.

    The stock has taken a hit because the company gave a whole lot of shares to it's employees as part of their compensation...The rest of the numbers were o.k..

    Fusion I-o could be at $60 this time next year, if it isn't bought out first!

  • Report this Comment On May 18, 2012, at 11:26 AM, TMFCop wrote:

    assisgnmeaname,

    The analysts referred to in the article are those tracked by CAPS. If you go to STX's CAPS page, you'll see where it lists those who rate the stock, including the broad CAPS community, CAPS All-Star players, and the analysts that CAPS tracks.

    Hope that clears it up for you.

    Rich

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