Many investors look to Wall Street for guidance when it comes to which stocks they should be buying and selling. But truth be told, Wall Street analysts are just as fallible as you and I. Many great companies often get overlooked by analysts who are either too busy or too nearsighted to see incredible potential.
With that in mind, we asked three of our analysts to name a company they believed Wall Street was overlooking. Here's what they had to say.
Leo Sun: Hospira (NYSE:HSP) is a hidden healthcare gem. Its business is split into specialty injectable pharmaceuticals, medication management (infusion pumps), and other pharma products. Revenue at the SIP segment, which accounted for 68% of Hospira's top line, rose 13.9% year over year last quarter. Revenue at the medication management segment, which accounts for another 18%, slipped 1.1% due to an ongoing FDA ban on pumps from its troubled Costa Rica plant.
But the reason Wall Street should pay attention to Hospira is its biosimilars pipeline, which is part of its SIP business. Over the next four years, 10 blockbuster biologic drugs with combined annual sales of $60 billion will lose patent protection in the U.S. and Europe. As a result, the biosimilars market could grow from $1.3 billion in 2013 to $35 billion by 2020, according to Allied Market Research.
Hospira has a pipeline of 11 biosimilars, which include generic versions of Johnson & Johnson/Merck's arthritis treatment Remicade, J&J's anemia treatment Procrit/Eprex, and Amgen's neutropenia treatment Neupogen. Once Hospira starts rolling out more biosimilars worldwide, its SIP revenue could skyrocket. Investors are willing to pay for that growth -- that's why the stock rallied 46% over the past year and now trades at 31 times trailing earnings.
Very much like Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), Leucadia National is principally a holding company that owns -- either in part or in whole -- an assortment of different businesses. And like Berkshire, it has been wildly successful, having watched its share price grow by 15.8% annually since 1987.
But unlike Berkshire, Leucadia gets little attention on Wall Street. At both Yahoo! Finance and Reuters, there are no analyst opinions or estimates to be found. And this is a big mistake.
Part of the reason Leucadia is a compelling investment is the variety of businesses it owns outright or has an investment in. There's investment bank Jefferies; National Beef, the fourth-biggest beef processor in the country; Vitesse, which owns oil properties in North Dakota; Berkadia, a commercial real estate loan servicer that is actually a joint venture with Berkshire Hathaway; and countless others.
Yet this complexity also makes it difficult to cover Leucadia and actually get a clear picture of its business operations. So, instead of diving into each business individually to gain an understanding of the company as a whole, Wall Street has seemingly decided to neglect the company outright.
And that is a disservice to investors, because a closer examination reveals there is a lot to like about Leucadia.
Sean Williams: For those of you who thought I'd turn to the healthcare sector with this pick, think again! My selection for one of Wall Street's most overlooked stocks is the Bank of Hawaii (NYSE:BOH).
As the name would imply, the Bank of Hawaii is a regional bank serving Hawaii, American Samoa, and the West Pacific. In general, Wall Street isn't that bullish on the company. According to the 10 firms currently covering Bank of Hawaii, just one ranks the company the equivalent of a "strong buy," and another gives it the equivalent of "buy." The remaining eight are split between six "holds" and two "sells." Furthermore, the mean price target is a mere 4% higher than where the stock currently trades.
But I believe this broad dismissal of Bank of Hawaii is a great disservice to investors.
For starters, Bank of Hawaii's management team runs a tight ship. Although mortgage service income is down year over year (and for what bank is that not true right now?), the true markers of financial strength are all heading in the right direction:
- Nonperforming assets declined to 0.5% from 0.56% in the year-ago period.
- Its efficiency ratio fell to 57.7 from 61 in Q3 2013 (the lower the number, the more profitable the business).
- Its net interest margin ticked higher by 2 basis points to 2.85%.
- Return on average assets expanded 6 basis points to 1.15%.
- Tangible book value rose to $23.32 per share from $21.58 in the prior-year period.
Long story short, its credit and asset quality continues to improve, all while the company keeps a lid on its expenses.
This bank is also intricately tied to the health of the Hawaiian economy. Luckily, because Hawaii is a prime vacation spot for middle- and upper-income families worldwide, its economy remains strong. Seasonal unemployment of 4.2% is far below the national average of 5.9%, while spending in Hawaii ticked up 2.1% through the first eight months of the year. Simply put, a strong Hawaiian economy means growth for the Bank of Hawaii.
With a solid 3.1% yield and a dividend payment that stood firm through the worst of the Great Recession, Bank of Hawaii is a regional bank that investors should be keeping their eyes on.
The Motley Fool owns shares of, and recommends Berkshire Hathaway, Johnson & Johnson, and Leucadia National. It also owns shares of Bank of Hawaii. 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.