While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Auxilium Pharmaceuticals, (NASDAQ:AUXL) gained 1% today after MKM Partners upgraded the biotechnology company from neutral to buy.
So what: Along with the upgrade, analyst Jon LeCroy planted a price target of $26 on the stock, representing about 15% worth of upside to yesterday's close. So while momentum traders might be turned off by Auxilium's pullback in recent months, LeCroy's call could reflect a sense on Wall Street that the concerns surrounding its growth trajectory are becoming overblown.
Now what: According to MKM, Auxilium's risk/reward trade-off is rather attractive at this point. "Auxilium shares are down 30% since March 4, versus up 2% for the S&P 500, on declines in the company's Testim testosterone business and after the huge initial ramp for Stendra (erectile dysfunction) slowed in recent months," said LeCroy. "We note that in the past several weeks, Testim declines appear to have slowed somewhat and Stendra prescriptions continue to grow. We think the recent pullback in Auxilium shares is overdone and we are upgrading shares from Neutral to Buy." So while Auxilium is probably still too speculative for average Fools, biotech-savvy contrarians might want to follow MKM's lead.
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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.