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.
CAPS Rating (out of 5)
CAPS Bullish Sentiment
No. of Wall Street Analysts
52-Week Price Change
|Discovery Labs (NAS: DSCO)||***||90%||1||38%|
|VirnetX (NYS: VHC)||*||61%||2||(11%)|
Source: Motley Fool CAPS.
As you can see, the results vary widely, so just because Wall Street loves 'em doesn't mean you have to. Use the list as a jumping-off place for your own research.
No generic opportunity
Like the phases of the moon, the running of the tides, or Charlie Sheen going off the rails on some bizarre rant, biotechs diluting their stock through share offerings following a run-up in their price is part of the natural order of things. Investors shouldn't have been surprised to see Discovery Labs price over 16 million shares last month at $2.80 a share following FDA approval of its lung drug Surfaxin. Considering it was around 80% of the value the shares had been trading at, the market promptly priced the stock at that level.
Yet it was also a necessary maneuver on Discovery's part because it has to finance the marketing of two new products. Surfaxin is used to prevent respiratory distress in premature babies; Afectair is a proprietary nebulizer that allows for the delivery of medication as an aerosol. Combine these two, and Discovery Labs has on its hands an important treatment and delivery system that neonatal units everywhere will likely want, as it helps eliminate the need to intubate infants, an invasive and somewhat risky procedure.
Surfaxin's success is not assured, however, as the synthetic surfactant will have to go up against animal-derived versions marketed by Abbott Labs (NYS: ABT) and Cornerstone Therapeutics, which currently treat about 90,000 premature infants annually.
With the shares back down around where they were before Discovery got approval, I'm marking the biotech on CAPS to outperform the broad indexes. As All-Star member Momentum21 points out, a lot of the risk of the unknown has been eliminated: "This doesn't have the same speculative potential at these levels but I also don't feel that the risk is what it once was...they do have a product to sell now and other products in the pipeline to push along as well."
Add Discovery Labs to your watchlist to be alerted when its products hit the market and the real competition begins.
Left at the altar
Considering the big string of patent payouts over the last six months, you have to imagine investors in other patent-rich outfits like InterDigital (NAS: IDCC) and VirnetX are wondering: What's wrong with us? Certainly bankrupt Kodak is left looking wistfully at AOL's billion-dollar payday from Microsoft the other day and saying, "That coulda been me!"
For VirnetX, however, there's still the possibility its portfolio could garner attention yet. According to the folks at iSuppli, capital spending on 4G and LTE standards will nearly triple over the next year to more than $24 billion and reach $36 billion by 2015. VirnetX has for a long time said it owns essential patents related to the security standards for 4G and LTE. Although it's planning on licensing the technology, it's easy to imagine someone wanting to buy up all that IP if for no other reason than to bludgeon a competitor in court.
Unfortunately that's how patents are being used these days, and it is said to be one of the motivations for Microsoft (NAS: MSFT) buying up AOL's portfolio: The intellectual property it got derives from the very birth of instant messaging, social networking, search, and security. That ought to be valuable in fending off advances from Google and even Facebook.
Microsoft was cowed into licensing VirnetX's technology last year, and as 4G proliferates it seems inescapable that others are going to have to as well. So I've rated the security specialist to outperform on CAPS. Add it to your own portfolio tracker, then let me know on the VirnetX CAPS page whether you agree that companies are going to have little wiggle room to get around its big moat.
Agree to disagree
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Abbott Laboratories, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of InterDigital, Microsoft, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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