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 high-flying favorites deserve analysts' unwavering support. But just because Wall Street loves ' em doesn't mean you have to. Analyst sentiment is just the jumping-off place for your own research.
No. of Analysts
CAPS Rating (out of 5)
52-Week Price Chg.
|American Capital Agency (Nasdaq: AGNC )
|Enerplus (NYSE: ERF )
|SandRidge Permian Trust (NYSE: PER )
|Spectrum Pharmaceuticals (Nasdaq: SPPI )
|Vanguard Natural Resources (NYSE: VNR )
Twisting in the wind
Mortgage real estate investment trusts like American Capital Agency have felt the impact of the Federal Reserve's Operation Twist program initiated last year that had the effect of encouraging homeowners to swap out of higher-rate mortgages into lower-rate ones. With the mREIT model counting on the spread between the rates paid for mortgages and the yields returned on investments, heavy prepayment of mortgages narrows the returns made.
Yet American Capital has done far better than virtually every single one of its peers, returning twice as much as CYS Investments and doing five times better than industry bellwether Annaly Capital. Perhaps it saw the writing on the wall sooner than many of its rivals, but as my colleague Amanda Alix noted, American Capital "made a point of concentrating on purchasing those MBS's that it believes will have a low prepayment rate." As of June, it had an annualized constant prepayment rate of just 8% compared to 21% for the Fannie Mae universe of mortgages. The CPR essentially measures those mortgages in an mREIT's portfolio that are being paid off early. American Capital's weighted CPR for the second quarter was just 12% while Annaly had a 19% rate and CYS was almost 16%.
While prepayments can prove difficult, if home prices don't stabilize or increase sufficiently, prepayments might not be a problem as refinancing might not be possible. When loan-to-value ratios collapse, banks won't be lending more money.
Laying the foundation for growth
Collapsing industry values were also behind the decline in independent oil and gas specialist Enerplus. Despite having assets in Canada's oil sands, as well as the important Bakken and Marcellus shale formations in the United States, the depressed market caused the driller to slash its dividend in half two weeks after it announced it was paying the dividend. Yet it's bounced some 44% off the lows it hit back in June. Vanguard Natural Resources also bounced back sharply, trading 40% above those lows, and now sits near its 52-week peak.
Similarly, SandRidge Permian Trust, spun off from SandRidge Energy a year ago, has felt the industry weakness, and though it trades above where it did last year, the stock is more than 20% below its highs. Low natural gas prices and high inventory levels have been enough to dissuade drillers from working their assets. The long-term benefit will mean greater profits in the future when the industry recovers as they sell lower-cost gas at higher prices, but in the meantime the industry is caught in a difficult spot.
Tell me in the comments section below where you believe these drillers will be this time next year.
Two for the price of one
Spectrum Pharmaceuticals is being weighed down by its attempted acquisition of Allos Therapeutics as delays and doubts about the efficacy of the purchase cut the drug developer's shares by a third. The precipitous drop in value led management to authorize a new $100 million share buyback program.
Spectrum has two drugs on the market and would like to add to that Allos' lymphoma drug Folotyn, along with its portfolio of drug candidates under development, but not everyone agrees that's a wise move. Investors themselves seem divided.
CAPS member jimbo456 is one of those worried about the delays in making the acquisition, commenting that he sees the stock collapsing if the deal doesn't go through since Spectrum wouldn't have a pipeline to its credit, but Emperor2 says regardless of how the deal goes, the drug developer wins. If it falls through, the "cloud of doubt" currently hanging over the stock is removed and it can continue soldiering on, while success would give its sales reps the ability to sell two drugs to the same audience instead of one.
I have a longstanding outperform rating on Spectrum Pharmaceuticals that I don't plan on changing anytime soon, but tell me in the comments box below whether you think its pursuit of Allos will be a net plus for it.
Agree to disagree
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