Is Wall Street Wrong About These Stocks?

Wall Street enthusiasm for the companies listed below is at best tepid, yet our Motley Fool CAPS members would like to disagree. They've bestowed these companies with top honors, signaling their belief they'll outperform the market.

So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of 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)

Wall Street Bullish Sentiment

CAPS Bullish Sentiment

CARBO Ceramics (NYSE: CRR  ) **** 70% 94%
Sequenom (Nasdaq: SQNM  ) **** 45% 92%

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 closer diligence on your part, so use these ratings as a launching pad for your own research.

Drilling is drying up
Because this country is flush with natural gas, prices can't move above their historic lows. In response, drillers are mothballing rigs and taking production offline. Southwestern Energy, Encana (NYSE: ECA  ) , and Chesapeake Energy have all announced cutbacks in production due to low prices.

The Haynesville region in particular is experiencing a sharp decline in the number of horizontal wells being drilled, and as a result, services provider CARBO Ceramics saw capital spending plunge 70% last quarter. While the long-term outlook for the industry remains bright, we're likely to see an extended period of sluggishness in the space.

CARBO needs to balance production of its proppants -- sand and ceramic beads that jam open fissures in rock formations when they're fractured and are essential to extracting natural gas from rock formations -- with demand. It's not an insurmountable issue, but it helps explain why CARBO is down 10% so far this year and 30% over the last six months even while bouncing off its lows.

While it's possible we'll see value stagnate for some time, long-term I agree with CAPS member bailey57 that CARBO is attractively priced with big gains coming in the future: "No debt and a dividend payout ratio of 16%, signs of good cash management. Still close to their 52 week low and with a PEG of .40 there is growth potential."

I'm marking CARBO to outperform on CAPS too, but add the industry services specialist to your watchlist to be notified of any breakout and tell us on the CARBO Ceramics CAPS page whether you agree we'll see sidelong trading for a period of time yet.

A house of cards
Despite gaining approval for its MaterniT21 Down Syndrome test last October, shares of biotech Sequenom continue to slowly erode. Even the positive earnings results it posted two weeks ago only reversed the trend temporarily before it resumed its inexorable slide. It's for situations like this, though, that I wish there were a "double down" button on CAPS to indicate my belief that this company is going to be a big winner.

Sales of its key test helped Sequenom's diagnostic testing segment revenues double in the latest period, and with another 2,500 samples received over the first two months of 2012, it expects to be able to perform some 20,000 tests this year, and that's not even taking into account its expanded sales force. One analyst expects 40,000 tests this year followed by 80,000 in 2013. So while there is a lot of negative sentiment built in against Sequenom, there are those who see its promise.

While it did lose some momentum from the data mishandling fiasco, it's on track again. I previously suggested its use of Illumina's (Nasdaq: ILMN  ) genome-sequencing equipment will give it an edge over any potential competitors who try to horn in on the space.

Join me over on the Sequenom CAPS page and tell us whether you agree this biotech will soon be soaring, then add it to the Fool's free portfolio tracker and see whether it can test new highs in the future.

What's wrong with that?
If the bull thesis for these stocks has you looking for more good ideas, check out The Motley Fool's new report called "3 Stocks for $100 Oil" that highlights three companies poised to take advantage of the fast-changing energy landscape. To get instant access, simply click here -- it's free.

Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of CARBO Ceramics. Motley Fool newsletter services have recommended buying shares of Illumina and Chesapeake Energy. 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.


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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 March 20, 2012, at 1:01 PM, unkownuser wrote:

    Rich, there is a large and stubborn contingent of short sellers who continue to illegally manipulate the price of Sequenom downward.

    This will be rectified. It may not happen in a flash, there not may be a sharp enough catalyst to create a squeeze, but the situation WILL BE RECTIFIED.

    Sequenom price will ultimately rise to a FAIR level, and will rise progressively from there as sales increase and revenues ramp up.

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