Whether it's a rare antique that gets discovered in your grandmother's attic or a valuable heirloom you buy for a buck at a flea market, some of the best deals seem to be found right beneath our noses. Of course when it comes to stock picking, the ability (or luck) to separate the wheat from the chaff is a rare and valuable skill.
Take Salix Pharmaceutical (SLXP) for example, a hot stock hiding out in a stodgy, defensive sector. This $2 billion, North Carolina based maker of drugs for gastrointestinal disease has earned recent notoriety by gaining over 80% in four months while the Nasdaq Biotech Index (^NBI) has been an in-line performer.
For Mark Lehmann, the president and director of equity at JMP Securities, this midcap "innovator" is destined to grow and he expects it will follow in the footsteps of many of its former peers and be bought.
"Playing on whether Pfizer (PFE) or Merck (MRK) is going up or down 5% is not the game we play at JMP," Lehmann proclaims. "When there are winners, big pharma dives in and pays big money for these companies and we feel Salix is one of them."
At the same, Lehmann's preference for the Tech Sector (XLK) has not been dampened by cautious comments and disappointing results, as much as it has been re-focused, and again scaled down to find the biggest opportunities.
Here, he mentions small-cap software service provider RealPage (RP) as a top pick. He cites its large inside ownership, good management, fast growth, and focus on the rental real estate market - the only piece of the housing pie experiencing any degree of growth right now.
And finally, Lehmann makes a contrarian case for buying Morgan Stanley (MS). This battered investment bank has been cut in half again in the past year and now has a $31 billion market value that's equal to DirecTV (DTV).
"I would not expect the Financials to lead the markets higher," he warns but feels Morgan Stanley's "problems are well enumerated" or already in the stock. Add in his expected improvement in Europe in the next few months plus an uptick in M&A, and you have what could be more upside than downside, not to mention a single-digit PE ratio and a median analyst price target of $22 (about 40% above current level).
What do you think? Would you bottom-fish a bank, bid up a biotech, or bet on the boom on rentals?
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