These Cold Stocks Are Heating Up

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.

Company

CAPS Rating (out of 5)

Recent Price

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.

Rate it yourself on the E-Trade Financial CAPS page then add it to your Watchlist to see if it's time to put away the umbrella.

Testing, testing
"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
Are these stocks invitingly warm or bitterly frosty? The Motley Fool has identified rock-solid investments that will lead you to "secure financial future." The report is free, but it's available only for a short time, so ask for your copy today and find out which dividend-paying stocks made the cut.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Illumina, TD Ameritrade Holding, and The Charles Schwab. 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.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 28, 2012, at 6:41 PM, unkownuser wrote:

    Sequenom earnings will come out after the close on March 6th, this will give everyone a better idea as to the future prospects.

    I expect strong sales and insurance reimbursement for MaterniT21. Confidence that 540 will withstand the US challenges (has already been defended successfully in Europe).

    We will also get insight into the expansion plans in NC and Torrey Pines, and how sales are going with the boatloads of new sales positions they've been hiring for over the past several months.

    I am expecting positive results from the conference call, and if you look at ALL of the information out there since the last earnings release, it all adds up to expect that a strong report is forthcoming.

  • Report this Comment On February 28, 2012, at 6:43 PM, unkownuser wrote:

    oops, earnings come out after the close march 7th... sorry for the typo

  • Report this Comment On February 28, 2012, at 7:04 PM, unkownuser wrote:

    The price per share of Sequenom has not reflected the GIANT STRIDES the company has made since the Oct 2011 launch of the MaterniT21 down syndrome blood test.

    Part of the reason is that the stock has been shorted mercilessly since the "data mishandling" episode of 3 years ago. Since that time, the CEO, and head of R & D (and others) were replaced. The company has reinvented itself and had it's MaterniT21 blood test independently clinically validated in at least two major publications (Genetics in Medicine, British medical Journal).

    The company is now under the careful guidance of former president of Amgen, Harry Hixson. Under Harry, the MaterniT21 blood test was successfully launched.

    Indications of how well the test is being adopted can be garnered through a few tertiary facts, all easily verifiable:

    -Internet Buzz. All the pregnancy and mom's forums are buzzing about Sequenom's new test. Additionally, Adam Wolfberg, MD just wrote an article in the online Huffington Post that generally endorses the MaterniT21 test over amniocentesis/CVS.

    -Insiders have been buying up shares like crazy over the few months.

    -Sequenom has been hiring like crazy over the past few months.

    -Secondary offering was snapped up so quickly that an over-allotment provision was also made available and snapped up quickly.

    -Sequenom signed (unannounced) a lease for an additional 40,000 sq ft of space in Torrey Pines. This in addition to the facility being built in North Carolina.

    -Analysts upgrading the stock and raising price targets.

    All of the preceding is easily verifiable by anybody who can use Google. So why is the price of Sequenom so low? There is a 21 million share short position, and the stock is viciously manipulated by the short interests. This could all change after the close of business on March 7th.

  • Report this Comment On February 28, 2012, at 7:54 PM, qtofdog wrote:

    I like the reasoning, Rich...however, one could argue (respectfully), that your reference to "hesitation" isn't real. In fact, "jumped the gun" might be more appropriate. Regardless, I share the optimism. The affiliation with Ilumina (details of the relationship never disclosed), is key, here; those guys don't mess around and I'm guessing in addition to the platforms, there was also talent shared...for a piece of the action, maybe? Who knows? If "the test" is coming forth, it's near. It must be; sequencing advancements are being made monthly, based on the press releases. A safe bet? I dunno....but, if you like $4 and some change, it might be time.

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