With all the volatility in the markets today, there's no shortage of market seers attempting to call a bottom. Man of the Year Ben Bernanke called a bottom not once, but twice, though some still argue that the worst is yet to come.
Investors should consider buying stocks after a big decline, when pessimism has unduly beaten good companies down to great prices. That's why we here at the Fool -- and 165,000-plus investors like us -- look to the Motley Fool CAPS community to help sniff out the real opportunities from languishing companies driven by speculation.
A real bottom or another leg down?
Of course, there's no foolproof method for timing a market bottom. But CAPS has a great balance of both quantitative and qualitative resources available on 5,400 stocks, and even a nifty stock screening tool to help investors quickly zero in on potential investment opportunities.
I've used the CAPS screener to filter out $100 million-plus companies that have seen their stock price appreciate by at least 15% in the past 13 weeks even while they remain at least 25% below their 52-week high.
|
Company
|
CAPS Rating
(out of 5)
|
13-Week
Price Change
|
% Below
52-Week High
|
|
Dynavax Technologies (Nasdaq: DVAX )
|
*****
|
38.2%
|
40.6%
|
|
Arena Pharmaceuticals (Nasdaq: ARNA )
|
****
|
19.2%
|
36.1%
|
|
MetroPCS
|
***
|
23.4%
|
31.8%
|
Source: Motley Fool CAPS. Results from April 16 through July 12.
Dynavax has been earning more investor confidence lately after its flu vaccine showed positive response in a preclinical study; it began a phase 1 trial in late June. It also has the attention of a Wedbush analyst who recently raised her price target significantly based on a bullish view for its hepatitis B vaccine Heplisav, which recently resumed human testing after seeing the drug sidelined for 18 months.
But with Food and Drug Administration review dates approaching for Arena's lorcaserin and other weight-loss drugs, many investors have become engrossed in projecting Arena's fate.
The bottom case
With the potential to enter a huge market for weight-loss treatment, investors see tremendous profits for Arena Pharmaceuticals if its obesity drug lorcaserin gains FDA approval. Lorcaserin and competing drug candidates Qnexa from VIVUS (Nasdaq: VVUS ) and Contrave from Orexigen Therapeutics (Nasdaq: OREX ) are up for FDA panel review this year and many investors see lorcaserin as a safer treatment than its peers.
Qnexa, which contains a component from the recalled diet pill fen-phen as well as a generic version of Johnson & Johnson's (NYSE: JNJ ) Topamax, faces significant questions about side effects. With sanofi-aventis (NYSE: SNY ) abandoning studies of its Acomplia pill because of side effects and Abbott Labs' (NYSE: ABT ) Meridia experiencing issues with heart attack risks, investors see lorcaserin's safer profile factoring significantly into its chances of approval.
Arena is also the first of the obesity drug candidates to land a marketing partner, with a recently signed deal with Japanese drugmaker Eisai. This allows the two companies to prepare to launch the drug immediately upon FDA approval.
Or further to fall?
Even though Arena Pharmaceuticals has obvious potential in the market for obesity drugs, there are a number of obstacles -- even beyond FDA approval -- that could derail the stock's rise. Some investors see competing obesity drug candidates as more efficient than lorcaserin. Even though lorcaserin may be seen as a safer choice, Qnexa may prove to be more popular in the event that both drugs are approved.
Some investors also question whether Arena got the best deal in its marketing partnership with Eisai, which has some investors hedging on expectations of a huge windfall. Until investors find out if lorcaserin gets a nod from the FDA, shares will likely swing dramatically. Shares shot higher on Tuesday as VIVUS' FDA panel review nears, but many acknowledge that negative information could just as easily send shares falling again.
What's your call?
Overall, 95% of the 622 CAPS members rating Arena Pharmaceuticals are bullish and see it outperforming the broader market. For my part, I just can't see much of a difference between investing in Arena and betting on a coin flip at this point. With so much riding on the FDA, I'll stay on the sidelines.
But what ultimately counts is your own opinion; CAPS is just there to help you form it. The best part is that the Motley Fool CAPS database is all free, and you can even add your own insight on any of the 5,400 stocks that our 165,000-plus members have covered.
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