Friday, July 13, 2012

Wall Street Needs to Get Behind These Stocks

Wall Street doesn't seem to think the companies listed below worth much enthusiasm. So why do our Motley Fool CAPS members disagree? They've bestowed on these companies the highest four- and five-star ratings, signaling their faith that the associated businesses will outperform the market while Wall Street offers lackluster support at best.

So who�has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley crew of community investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?

Stock

CAPS Rating (out of 5)

No. of Analysts

Wall Street Bullish Sentiment

CAPS Bullish Sentiment

Computer Sciences (NYSE: CSC  ) **** 11 63% 87%
GlaxoSmithKline (NYSE: GSK  ) **** 16 69% 95%

Source: Motley Fool CAPS.

Now, as much as we love our CAPS community, don't buy these companies just because they've garnered top ratings. And don't sell 'em just because Wall Street says to, either. Investing requires close diligence on your part, so use these ratings as a launching pad for your own research.

The "It" girl
It's understandable why analysts are reticent about backing IT services specialist Computer Sciences. It's still under investigation by the SEC over accounting irregularities in some of its international divisions; it is still weighed down by its contract dispute with the health services regulator in the U.K., something that could cause it to write down the $1.5 billion full value of the contract; and its CFO just resigned in the wake of the company's appointment of a new CEO.

It's actually that last point that probably portends the most hope for the government IT contractor. A fresh start with fresh eyes can sometimes be what a company needs to get past an ugly chapter in its history. Rival Ebix (Nasdaq: EBIX  ) has bounced back after questions were raised over its accounting propriety and its�growth-by-acquisition strategy. Shares of the cloud-based IT coordinator have climbed back up to nearly the same level they were at a year ago despite having been cut in half by this past October.

Computer Sciences reported earnings that beat analyst expectations, once adjustments were made to exclude the NHS contract. It also reported that new contract business stood at $13 billion year to date, up 26% from the year-ago period, so with a turnaround specialist at the helm now, there seems every reason to believe it can continue to improve, even if the big rally in shares the other day was a bit premature.

While the broader CAPS community is supportive of CSC, All-Star CAPS members are even more so, with 90% of those top investors weighing in thinking it will go on to outperform the broad indexes. Add the IT specialist to�your Watchlist�then head over to the�Computer Sciences CAPS page�and tell us if you think the turnaround around specialist can turn around CSC.

At the precipice
Pharmaceutical giant GlaxoSmithKline suffered something of the opposite problem the other day when it reported earnings. While it was profitable, it missed analyst projections and saw sales of its Avandia and Valtrex slip. It also said it was buying back less stock than it did a year ago.

Unlike some rival drug makers like Eli Lilly (NYSE: LLY  ) and AstraZeneca (NYSE: AZN  ) , who face a particularly steep patent cliff, wherein a significant portion of their revenue will face generic competition in the near future, Glaxo hopes to achieve something more akin to a "patent slope." That's because it has a deep pipeline of drugs in development that ought to help make up for the loss of protection for Seretide and Avandia.

CAPS member BinyaminK recently remarked that Glaxo is a slow and steady performer that, like the tortoise in its race against the hare, should ultimately come out ahead.

This is a "Giant Tortoise Stock." Like a giant tortoise, It may be big and slow, but it has a hard shell (economic moat), can swim far (enter into new and emerging markets and industries), and live long.

Add GlaxoSmithKline to the Fool's free portfolio tracker and see if it can coast over the edge with the rest of the pharmaceutical industry.

What's wrong with that?
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