3 Analyst Calls Worth Noting on Tuesday
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Tuesday the market responded with gains after posting its largest loss of the year on Monday. While most stocks saw gains, there were many that saw excessive movement following the opinions of analysts. Therefore, I am looking at the three most noteworthy calls of the day.
Analysts Continue to Piggy-Back Each Other & Push this Stock Higher
Shares of social media company LinkedIn (NYSE: LNKD) ticked higher by more than 3% as the stock inches closer towards all-time highs. The run higher was caused by the initiation of coverage by National Alliance Capital, with a “Buy” rating and a $192 price target. The firm believes that LinkedIn’s risk/reward ratio is favorable and that there are very few competitive threats in its business. Finally, the fact that the stock is so close to new highs also added to the firm’s reason for the bullish call.
This call by National Alliance Capital is a “follow the leader” call if I’ve ever seen one. The firm didn’t explain “how” the company is worth $192 with its current business model. With a $192 price LinkedIn would be worth $21 billion, and let’s not forget that its primary industry is in jobs, and networking jobs. My question is how in the world is this one segment worth $21 billion, especially when LinkedIn only reported revenue of $972 million in the last 12 months with revenue decelerating? In my opinion, this call was based on momentum, and was based on the fact that LinkedIn has become a favorite in the social media space, but is in no way based on fundamentals or valuation, which should be part of “Analyst 101.” Therefore, I believe it was a horrible call, although the price target is likely in the short-term.
I’m Finally Becoming a Believer
Over the last six months I have found it quite interesting to follow the behavior of analysts who cover BlackBerry (NASDAQ: BBRY). For the most part, it has been the speculation created by analysts that has pushed shares higher, and I have remained vocal of my concerns regarding the lack of fundamental induced movement. Yet on Tuesday, analyst Peter Misek (who I highly respect), from Jefferies, returned from an Asian trip with a bullish take on Blackberry; saying BB10 phones have increased to over 2 million per month. Misek suggests that at least 2-3 more models are likely to launch this year and that Z10 sell-through data is steady, while Q10 pre-sales are strong.
I never had a problem with Blackberry; I simply wanted to see fundamental progress to compliment the large gains. Now, much of the hype has died down, and shares of Blackberry have found a steady range. On Tuesday the stock rallied almost 2% and the stock is still trading at just 0.64 times sales. In regards to the new BB10, I have now had the opportunity to explore its features and personally I love it. However, I also love the Windows 8; therefore the question is whether or not demand will remain strong. Either way, I am becoming more convinced every day, and $14 I think the stock is very attractive.
My Suggestion for this Stock Holds True
Shares of Sarepta Therapeutics (NASDAQ: SRPT) fell lower by 13% on Tuesday after Leerink Swan downgraded the stock to “Market Perform” from “Outperform.” The firm believes that the FDA’s recent request (additional trial, drug, and company information) has “prolonged uncertainty” and that the need for a Phase 3 preapproval could give GlaxoSmithKline’s competing drug a market advantage.
Two weeks ago I wrote an article here on Motley Fool breaking down the best way to play Sarepta Therapeutics ahead of the FDA decision. I explained that it was only a 50/50 chance that the company gained an accelerated approval and that the best bet was to wait and buy afterwards. I still think this holds true, and I think Leerink Swan’s downgrade is both wise and responsible to investors.
On a side note, I do consider Sarepta to be one of the more promising stocks in biotech long-term. I chose the stock for my “Value of the Month” back in March (returned a 25% gain) and I believe it could become a $3-$6 billion company based on its pipeline and the valuations awarded to other companies with Orphan statuses. With that said, the market expects an accelerated approval, and that weighs badly for the stock if the 50/50 chance does not fall in favor of Sarepta. Therefore, I would simply wait and see what happens.
In my book, Taking Charge With Value Investing (McGraw-Hill, 2013) I discuss how to assess the opinions of analysts, and how to use them to your advantage. Typically, there are two types of calls: those that follow the trend and those who call regardless of the trend. It is important to distinguish between these two groups, and to not follow the performance that a call creates, but rather read and incorporate the notes as part of your research. Then, when you are able to find inconsistencies between value and valuation you will be better prepared to capitalize on the opportunity.
Brian Nichols is long SRPT. The Motley Fool recommends LinkedIn. The Motley Fool owns shares of LinkedIn. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!