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 its 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 up 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
|E-Trade Financial (Nasdaq: ETFC )||****||$9.66||42%|
|Sequenom (Nasdaq: SQNM )||****||$4.45||4%|
Source: Motley Fool CAPS; NM = not meaningful.
Obviously, this is not a list of stocks to buy -- just a starting point for further research. But if some of the best investing minds are taking notice of these stocks, maybe we should too.
Caution: Contents may be hot
It's been a long walk in the financial wilderness for discount broker E-Trade Financial but the stock is making a comeback as its woes from Wall Street's meltdown move further behind it. Daily average revenue trades were up 20% sequentially in January, although, like rivals Charles Schwab (NYSE: SCHW ) and TD Ameritrade (Nasdaq: AMTD ) which also saw declines YOY, the DARTs were down 20%. E-Trade also saw customer security holdings rising as well as brokerage-related cash.
The discount broker has been working to improve its financial footing and though net charge-offs were down from the prior quarter, its loan-loss provisions were 25% higher. Still, its balance sheet was getting better as its loan portfolio shrunk by another $664 million, to $13.5 billion.
Ameritrade reported its DARTs were up 18% sequentially, but down 17% from the year-ago period. Schwab was up and down 8%, respectively.
CAPS member BFatConservative thinks it will do well so long as it doesn't wander from the path again.
LONG (mind if I re-emphasize?) LONG-term play. Interest rates won't be friendly for a couple of years, but as long as the MGT doesn't decide to participate in rampant mortgage-backed securities (again), they are positioned for strong positioning post-2013.
After E-Trade's initial implosion I marked the broker to outperform on CAPS, but was too early, as there were so many other shoes dropping, it was practically raining footwear. I closed out that pick with a loss, but I'm back in again now with a new outperformance call.
"He who hesitates is lost" is a saying that could apply to diagnostic-testing specialist Sequenom, which suffered a well-publicized two-year stutter-step in get its non-invasive prenatal Downs syndrome test on the market. Although it ultimately recovered its footing, it lost valuable time and now a number of other companies are trying to advance in the space that Sequenom created.
At least three biotechs have preemptively sued Sequenom in hopes of having their own tests declared as not infringing on its patents. Sequenom is now going after them and filed a lawsuit against privately held Aria Diagnostics.
What may set Sequenom apart from its rivals, should they prevail, is its relationship with Illumina (Nasdaq: ILMN ) . Using Illumina's genome-sequencing equipment, the biotech is able to gain better than 99% accuracy in its tests without the risks associated with amniocentesis. I've already rated Sequenom to outperform the market on CAPS and I still believe it will, but it can't be denied that the unnecessary delays it suffered reduce its ability to fully cash in on its innovation.
Let us know in the comments section below or on the Sequenom CAPS page if you agree it's lost precious time, and add it to the Fool's free portfolio tracker to see if it can make up for it -- or at least keep its rivals at bay.
Checking the mercury
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