These Stocks Stopped the Presses

You saw the headlines. You know your stock price made a big move -- up or down. But what does that portend for your investment's future? If there's not a fundamental basis for a stock's run higher or its trip to the cellar was fueled by transient, panic-driven selling, those gains and losses might not hold -- and therein lies the potential for investors to profit.

So this week we're looking at two stocks that bolted higher: Complete Genomics (Nasdaq: GNOM  ) , an up-and-coming genomics and DNA sequencing technology specialist that roared ahead 38%, and biofuels innovator Solazyme (Nasdaq: SZYM  ) , which gained 22% on the week. And to prove not all is rainbows and unicorns, we'll check out sound-systems seller DTS (Nasdaq: DTSI  ) , which received a 29% goring after reporting some tin-ear earnings guidance.

But you can't follow the momentum crowd blindly, which is why we look at what may have been behind those moves and we'll even take into consideration what some of the sharpest investors think about their prospects going forward. Event-driven moves, coupled with the collective wisdom of our 180,000-strong Motley Fool CAPS investing community, might help you discover whether your stock's latest exploits are a short-term hiccup -- or the start of a much bigger trend.

In the proper sequence

We've been through similar spikes in share price for Complete Genomics, but two months ago there was no news to explain the rally, so I figured it would fall back to earth and I rated it to underperform the market on CAPS.

That bet was working out for me until last week, when the gene sequencer unveiled a new technology to improve the accuracy of DNA sequencing while reducing the amount of actual DNA needed to perform such tests. The stock shot up 43% in one day. Complete Genomics will now be able to effectively compete against larger rivals such as Illumina and Life Technologies. They've been hurting since the National Institutes for Health cut back R&D funding (Illumina is down 41% over the past year; Life is off 11%).

A Wall Street Journal story said the price of whole-genome sequencing is rapidly declining and the "$1,000 genome" is in sight. Complete Genomics said its new technology will bring the cost down to a range of $5,000 to $10,000, with lower prices given for volume. I've closed out my CAPS pick for the tiny tech company, realizing now someone must have had some insight into the good news soon to come out.

No news not good news
As much as I and other Foolish analysts might dismiss the long-term viability of biofuels, Solazyme is plowing ahead. It's building an algae-based oil production facility in Brazil with Bunge, commissioned an Illinois plant, and is enjoying analyst support for its efforts. ThinkEquity, UBS, and Goldman Sachs all initiated coverage with buy ratings on the stock.

Of course, it's a long way from building plants to being commercially viable, and biofuels have thus far proved that they're not up to the task of being competitive with oil on the basis of cost and scale. Indeed, despite industry peer Amyris' (Nasdaq: AMRS  ) recent success using a sugarcane-based jet fuel, we can probably expect it, Solazyme, and KiOR to all tap the public markets again to keep themselves afloat and functioning -- which is why not every analyst thinks Solazyme is ready to gas up. The folks at Raymond James downgraded the stock, though even there it hedged its bets by rating it a "market perform."

Of course, even Solazyme bulls like lanceim59 keep downplaying the biofuels link, pointing to its line of cosmetics and neutraceuticals. For me, if its adherents think it will do better going up against Estee Lauder than ExxonMobil, then there's not much investment thesis here to hang your hat on, and I'll be maintaining my underperform rating on CAPS.

Singing the blues
The death of the DVD player has been foretold for some time and has even served as a drag on sound specialist Dolby Labs (NYSE: DLB  ) , whose codecs dominate the playback device. While PC sales helped extend the life of the format, as DVD-less tablets cannibalize PC sales, it certainly seems the end is nearer than ever.

Unfortunately, that means Blu-ray players also have a limited shelf life, and DTS, the dominating force in Blu-ray -- according to Nielsen, 86% of the top 100 Blu-ray titles sold in 2011 were encoded with DTS technology -- will live and die with its proliferation or contraction. It said that consumers were reining in their spending on electronic products, particularly Blu-ray players, and revenues for the second quarter will fall short of even normal seasonality.

Because Dolby is a far more broadly grounded company than DTS, I've owned shares of the former rather than the latter and will continue to do so. Its low one-star rating on CAPS also suggests that investors think there are much better places for your money. But you can give your thoughts on the longevity of DVDs and Blu-ray players in the comments box below.

Read all about it!
These three stocks made a lot of noise this week, but if they carry too much risk for you, The Motley Fool has found another stock with so much promise that we've dubbed it "The Motley Fool's Top Stock for 2012." This up-and-coming multibagger is highlighted in a free report that discusses how it's revolutionizing commerce in Latin America. You can get instant access to the name of this company by downloading it now.

Fool contributor Rich Duprey owns shares of Dolby Laboratories, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Solazyme and ExxonMobil. Motley Fool newsletter services have recommended buying shares of Goldman Sachs, Dolby Laboratories, and Illumina. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (4)

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 July 18, 2012, at 9:14 PM, Cake123xyz wrote:

    This Motley Fool author seems quite a bit biased. The author highlights Raymond James as downgrading Solazyme despite the fact that the reason was clearly stated that the stock had hit its price target according to the analyst.

    A more accurate picture of the analyst sentiment can be seen here:

    http://www.streetinsider.com/rating_history.php?q=SZYM

    The score?

    9 analysts rate with buy/outperform

    1 analyst rates market perform (raymond james)

    1 analyst rates underweight.

    The average price target is $17.71

    The current stock price is $13.33

  • Report this Comment On July 19, 2012, at 3:23 AM, DWInFidelCastro wrote:

    I keep on hearing that GNOM is a target of Roche and the big block buying on the stock is impressive. $12M worth of shares was bought by the same buyer over the past week as detailed in this site:

    http://biotech-buyout-rumors.blogspot.com/2012/07/over-12m-w...

  • Report this Comment On July 19, 2012, at 7:38 AM, TMFCop wrote:

    Cake123xyz,

    Biased? Yes, but other than my admitting as much upfront, I don't think the article is unfair to SZYM.

    I mention 3 upgrades SZYM received and 1 downgrade. I noted the reason the stock took a hit was because of the downgrade, but even said RJ hedged their bets and then linked to the article that explained it a little more fully.

    I'm not a fan of the company, but I try to deal with the facts as they apply to the business. Thanks for reading!

    Rich

  • Report this Comment On July 19, 2012, at 9:12 AM, stockdissector wrote:

    I think Dolby is more widely grounded. I think their technologies need to be kept up to date and proprietary because they face open source competition especially in the digital camera arena.

  • Report this Comment On July 19, 2012, at 9:17 AM, stockdissector wrote:

    Dolby has one of the best fundamentals I've seen in companies I have researched. I will probably be buying myself shortly. The decrease in stock price provides a good entry point.

  • Report this Comment On July 19, 2012, at 9:32 AM, stockdissector wrote:

    I meant to say digital cinema camera.

  • Report this Comment On July 19, 2012, at 4:16 PM, lanceim59 wrote:

    Rich, you write the same garbage over and over. Please quit so you don't keep looking like a moron.

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