These Cold Stocks Are Heating Up
Jun 9th 2012 5:14PM
Updated Jun 9th 2012 5:16PM
When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as the market warms to a stock's prospects, its price can heat up in a hurry. Alas, you can rarely tell that a stock is melting investors' hearts until after it's made that upward leap.
Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions of 180,000-plus members, offer a great way to monitor Investor sentiment. Following a CAPS rating trend can help us determine the best time to invest. Let's look at previously low-rated companies that have recently enjoyed a bump in investor confidence to the top tiers and see whether they're truly heating up -- or headed back to the deep freeze.
CAPS Rating (out of 5)
EPS Growth Next Year
|Astex Pharmaceuticals (NAS: ASTX)||*****||$1.81||NA|
|CVS Caremark (NYS: CVS)||****||$44.84||13%|
Source: Motley Fool CAPS; NA = not available.
Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should too.
Caution: Contents may be hot
Some may think that without Dacogen to build on, Astex Pharmaceuticals isn't worth the paper its stock certificates are printed on. Shares soared earlier this year ahead of a decision on its blood cancer drug, only to come crashing back when the FDA's advisory panel voted 10-3 against approving the treatment. Considering that was its most advanced therapy, the stock now trades for nearly half the value of its highs.
Yet the fact that it retains some value shows that a cadre of investors is placing a bit of faith in its pipeline. It means the road will be longer to travel, but if successful, it could be just as rewarding. There are at least four drugs that will print midstage trials before the end of the year, and it has another that's just starting out, but it's being done in collaboration with AstraZeneca. And its partner on Dacogen, Japanese pharmaceutical Eisai, hasn't given up on getting it approved for a different cohort of patients.
As the Fool's Sean Williams notes, based on Astex's cash on hand and its market value, "investors are practically getting an entire pipeline of potential products for $42 million." That makes it worthy of a second look.
Notably, all but one of the 50 CAPS All-Stars weighing in on Astex apparently agree with that conclusion and think the tiny pharma will eventually go on to outperform the broad market indexes. Although there's obviously a lot of risk involved here, as none of its treatments may ever cross the finish line, as SamsaricSufferer suggests, its "deep pipeline" has a better shot of having something succeed all the while generating revenues from its partnerships.
Tell me on the Astex Pharmaceuticals CAPS page or in the comments box below whether you think at least one of its drugs makes it through the gauntlet, and then add the stock to your Watchlist to be alerted to events as they occur.
A Pyrrhic victory?
There's been at least one winner from the internecine battle between Walgreen (NYS: WAG) and drug-benefits manager Express Scripts (NAS: ESRX) : rival pharmacy CVS Caremark. It's expecting the gains it's made from pharmacy customers leaving Walgreen -- the drugstore says comps fell 8.5% in May -- to add anywhere from $0.03 to $0.04 per share to its current quarterly earnings.
As CVS notes, losing a pharmacy customer is a difficult thing to do. You tend to return again and again to the same place out of familiarity, convenience, and so on. But once you do lose that customer, it's even more difficult to win him or her back. As customers leave Walgreen in droves for CVS and Rite-Aid (NYS: RAD) to get their prescriptions filled, Walgreen is going to have a difficult time recovering even if it eventually does settle its battle with Express Scripts.
That could be why all 30 Wall Street analysts following CVS on CAPS are unanimous in their belief the pharmacy giant will continue to outperform the market. It's not that much different among the more than 1,700 CAPS members who've taken a stance, too, where 96% see it beating the Street.
Weigh in yourself on the CVS Caremark CAPS page, and then add its stock to the Fool's personalized -- and free -- stock-tracking service, where you can be alerted to developments in the pharmacy battle and whether Walgreen's fleeing customers bolster CVS's bottom line.
Checking the mercury
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Express Scripts. The Motley Fool has a disclosure policy. We Fools don't 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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