Following the smart money on Wall Street can help you find great investment ideas. But you have to take the ideas with a grain of salt, because some big-name investors may be willing to take on more risk than you should be shouldering. To that end, some very big investors have been buying shares of software-as-a-service leader Salesforce.com (CRM 1.05%) and precious metals streamer Royal Gold (RGLD 1.34%), two names worth a close look today. However, those jumping into biotech start-up Harpoon Therapeutics (HARP 0.09%) may be early to the party. Here's what you need to know about this trio of smart-money favorites.
The original SaaS play
Brian Stoffel (Salesforce): Ken Fisher has a brilliant track record as a money manager. Today, his fund has more than $94 billion in assets under management. During the first quarter of 2019, he made a substantial increase to one of his positions -- buying almost 2 million shares of Salesforce. It currently stands as the 25th-largest position his fund owns (note: the fund owns well over 750 stocks).
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It might seem like Fisher is late to the game on Salesforce. After all, shares have advanced 1,500% over the past decade. But the company -- which was the first major player in the economy to capitalize on the software-as-a-service (SaaS) business model -- continues to show robust growth. It has continually shown that it can grow sales at a clip above 20% per year -- no small feat for a $120 billion company.
So does that make Salesforce a good stock for you? That depends entirely on your outlook and goals. The company brought in a hefty $3.3 billion in free cash flow over the past year. Shares trade for 36 times that amount. That's not outrageously expensive -- but it's also far from cheap.
An investment in Salesforce is an investment in a founder-led company that is leading the SaaS revolution. And it hasn't been shy about strategic acquisitions -- including the recent all-stock purchase of Tableau -- to further this leading position. At the end of the day, if mergers prove fruitful and demand for software keeps growing, Salesforce provides broad exposure to this important industry.
Going for the gold
Reuben Gregg Brewer (Royal Gold): Ten investment companies added at least two million shares each of Royal Gold in the first quarter, including names like Apollo, Citi, Lazard, and Wells Fargo. Why would some of the smartest people on Wall Street be jumping aboard this precious metals streaming company?
Gold, which makes up nearly 80% of the company's revenues, is considered a "safe haven" investment. When Wall Street is tanking, investors often buy gold to protect the value of their portfolios. With the S&P 500 Index near all-time highs and the swift and dramatic market moves over the past year or so, it makes sense that smart investors are adding a little more diversification to their portfolios. Gold has historically been a great choice for that.
And Royal Gold is a wonderful way to do it. The company is a streamer, meaning that it provides cash to miners for the right to buy gold (and other metals) at reduced rates in the future. That allows it to avoid the complications of running a mine while at the same time providing it with contractually wide margins. In that way, it's better than a miner, for which falling commodity prices can lead to material red ink, and better than gold itself, which lacks growth potential (an ounce of gold will always be an ounce of gold; miners and streamers can increase production). Now add in a roughly 1% yield backed by 18 years of annual dividend increases and modest debt levels, and the allure of Royal Gold today is easy to understand.
A fresh face in the immunotherapy race
George Budwell (Harpoon Therapeutics): If you haven't heard of the clinical-stage biotech Harpoon Therapeutics, you probably aren't alone. The pre-revenue immunotherapy company, after all, completed its initial public offering (IPO) only last February, and its novel T-cell-engaging platform is still in the early stages of development. However, Harpoon did manage to intrigue numerous top-flight investors during its recent IPO, with renowned biotech-oriented funds like the Baker Bros. Advisors gobbling up a significant amount of shares right from the jump.
What does Harpoon offer early-bird investors? The company's value proposition centers around its antibody-derived platform, TriTAC, designed to target and destroy tumors. As things stand now, the company has two assets -- HPN424 for prostate cancer and HPN536 for ovarian cancer -- in early-stage human trials. The company plans on broadening its clinical portfolio by launching other early-stage trials for product candidates targeting multiple myeloma and small cell lung cancer soon. Each of these four initial indications represents a multibillion-dollar commercial opportunity.
Should investors take Wall Street's lead on this developmental biotech? Frankly, the answer is probably a "no" at this point. Early-stage cancer candidates have a dreadful track record in the clinic, making Harpoon an extremely risky play. Moreover, most biotech IPOs have turned out to be exceedingly poor investments over the last five years -- even though a select few companies like Kite Pharma and Juno Therapeutics did make their early shareholders a tidy sum. Put simply, Harpoon is probably best viewed as an intriguing watch list candidate at this juncture, despite Wall Street's early enthusiasm.
