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 highflying favorites deserve analysts' unwavering support. Just because Wall Street loves ' em doesn't mean you have to. Analyst sentiment is just the jumping-off place for your own research.
Connecting the dots
My Foolish colleague Anders Bylund recently wondered what was wrong with optical networking hardware maker JDS Uniphase (NAS: JDSU) after it turned in its third consecutive quarter of falling revenues. While the equipment maker said a bunch of orders came in late and will shift to the following quarter, as Anders noted, JDS' guidance still came up short.
While it's tempting to think it's a company-specific issue, the fact is that spending on optical networking equipment was down everywhere in the first quarter. According to the market analysts at Infonetics Research, global spending in the sector fell 23%, and while every region saw a decline, it was worse in some areas (Central and Latin America, down almost 50%) and less so in others (North America, off around 5%). Europe, the Middle East, and Africa saw a better-than-30% drop in spending.
That's reflected in JDS Uniphase's own results, which saw a less-than-8% drop in North American revenue, but a 25% fall-off in EMEA sales. While most players suffered, the pain was not spread equally. Infonetics saw Ciena (NAS: CIEN) gain in North America while Infinera (NAS: INFN) was one that gained in Europe. And as disappointed as the market was with Cisco's (NAS: CSCO) results, it had a strong showing in the Americas as well as in the Asia-Pacific region.
That could be why the 16 analysts covering JDS Uniphase are still upbeat about its longer-term prospects. It's not so much anything the equipment maker is doing but rather a general malaise cast over the industry. Indeed, analysts at Ovum are looking for a second-quarter rebound.
In contrast, the investor community at Motley Fool CAPS is a little more cautious about the optical networking specialist's progress, with just 82% rating it to outperform the market indexes. I'm more upbeat, though, and have rated it to outperform. Undoubtedly, all the inventory the industry has been working through has been consumed and things should steadily improve from here. At less than 12 times earnings estimates, it is cheaper than many of its rivals, though when compared to its projected growth rate it seems to be priced right. Optical networking remains a growth industry over the long haul so let me know on the JDS Uniphase CAPS page or in the comments section below if you think it will surprise to the upside, then add the stock to your watchlist to be notified immediately if it makes a move.
Promising biotech candidate Threshold Pharmaceuticals (NAS: THLD) doesn't have the same Wall Street following that JDS Uniphase has -- only three analysts are tracking it on CAPS -- but the potential for it to have a big hit on its hands has them feeling upbeat about its prospects.
According to the analysts at Cowen, there's a $1.5 billion market staring Threshold in the face for its pancreatic cancer drug TH-302, and that's just in the U.S. Thus far, the data have been particularly encouraging, with nearly twice as many patients responding positively to the combination of TH-302 and Eli Lilly's Gemzar compared to those who took Gemzar alone.
Threshold's stock has pulled back 25% from its recent highs, but I thought the market drubbing was a little overwrought considering the prospects for success, so I rated it last month to beat the Street -- and so far the stock has advanced 9% compared to the S&P 500 losing 4.5% of its value. I expect Threshold to continue making gains like that, though perhaps not so large as the 450% jump in value it has realized since the start of the year.
CAPS member irishred1 is another who sees the promise and finds the pullback in price an opportunity, but the broader CAPS community remains somewhat hesitant to back it fully, possibly because more often than not early-stage biotechs lead to a lot of disappointment. Add Threshold Pharmaceuticals to your watchlist to see how solid of an investment it turns out to be.
Agree to disagree
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At the time this article was published Fool contributor Rich Duprey owns shares of Cisco Systems, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Infinera and Cisco Systems. Motley Fool newsletter services have recommended buying shares of Infinera. 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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