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." While the pinstripe-and-wingtip crowd is entitled to its opinions, down here on Main Street, we've got some pretty sharp stock pickers, 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 to track the long-term performance of Wall Street's best and worst.
It was the best of times, it was the worst of times
Today, you're either getting the clarion call to run away from MAKO Surgical (Nasdaq: MAKO ) and never look back -- or hearing about an opportunity to buy shares on the cheap.
The maker of robotic systems for orthopedic surgery procedures just preannounced a terrible second quarter with dwindling system sales and weak demand for renewable supplies. There's no official word yet on how these trends translate into revenue and operating profits or -- who am I kidding? -- losses, but it can't be good news.
In response, analysts circled their MAKO wagons around much lower price points. Mizuho slashed its price target on the stock from $30 to $15 and Goldman Sachs dropped down from $36 to $17. Both firms moved from "buy" recommendations to "hold" ratings; Canaccord Genuity simply stuck to its longtime "hold" opinion with a new $16 target price -- down from $29.
So it seems MAKO has few friends on Wall Street today -- nobody stepped up to grab the suddenly 40% cheaper shares with both hands. Instead, Goldman questions "the long-term viability of MAKO's core technology and the extent to which the company can grow outside of its initial indication." Canaccord worries about slow adoption of Mako's hip surgery procedures.
Rating the raters
Goldman used to have a hot hand in the medical-equipment industry. In mid-2011, its CAPS account showed twice as many correct picks as incorrect ones in this sector, which is well above average. But times have changed. Now, Goldman sits on more losers than winners in the medical machinery field. To the firm's credit, Goldman tends to score big when it gets these picks right:
CAPS Rating (out of 5)
Goldman's Picks Beating (Lagging) S&P 500 by:
|Edwards Lifesciences (NYSE: EW )||Outperform||***||33%|
|Stryker (NYSE: SYK )||Outperform||*****||(16%)|
|Boston Scientific (NYSE: BSX )||Underperform||***||38%|
Source: Motley Fool CAPS.
Goldman also knows when to fold 'em. The firm closed its unsuccessful "sell" call on Intuitive Surgical (Nasdaq: ISRG ) when that robotic surgeon sat just under $400 -- thus sparing itself the pain of seeing Intuitive gain another 33% from those already lofty heights. Goldman also sees plenty of upside for the company AKO is supposed to be disrupting, Stryker. The maker of more conventional knee-replacement technology sits with a $71 price target, a third higher than today's stock price. Meanwhile, Edwards blew through Goldman's $84 price target as it surged over $100 per share, and Boston Scientific plunged below the $6-per-share "conviction sell" case Goldman detailed.
Is the cautious call on MAKO a healthy reaction in the other direction? I find it hard to disagree.
When growth stocks hit a speed bump, you can usually tell that everything is going to be all right because there are short-term problems to explain temporary weakness. This time, management couldn't specifically explain away the disappointment. Instead, CEO Maurice Ferre just said that "we have experienced slower-than-expected growth" and promised to double down on execution. But that's easier said than done.
Ferre did play the "late sales" card in last night's analyst call, but he didn't back that up with healthy next-quarter guidance. So there's no conviction behind those words.
I've been bullish on MAKO, but the wheels are falling off this high-growth bandwagon. That's why I just closed my "outperform" CAPScall on MAKO. Intuitive Surgical gives me all the medical-equipment exposure I need, being the biggest winner in both my CAPS account and my real-money portfolio -- by a wide margin.
That being said, MAKO is still an active recommendation from our Rule Breakers newsletter service. Brush up on the bull case for this stock in our MAKO-flavored report on the next rule-breaking multibagger. Smart investors need to hear both sides of the story.