Unloved Stocks Ready to Shine

Think of investor sentiment as a pendulum that swings in tandem with a company's share price. When investors begin to think highly of your company, its stock might also start heading in the right direction. Alas, you can rarely tell when investors are warming to a stock until after it has made that upward swing.

An astrolabe for investors
But Motley Fool CAPS' ratings, aggregated from the opinions and accuracy of 96,000-plus investors, offer a great way to monitor investor sentiment. Like astronomers scanning the skies, investors can follow a stock's stars through its CAPS rating trend, tracking investor sentiment to help determine the best time to invest. Let's look at one- or two-star-rated companies that have recently enjoyed a bump in investor confidence and see whether the stars are really aligning in their favor.

Source: Yahoo! Finance and Motley Fool CAPS. Sitris Pharmaceuticals began trading on May 23, 2007.

Obviously, this is not a list of stocks to buy -- just a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks, maybe we should, too. 

An ageless opportunity
There is no cure for Alzheimer's. Treatments such as Eisai's top-prescribed drug Aricept, which is co-marketed with Pfizer (NYSE: PFE), only slow the onset. It can prolong the cognitive abilities of those who are afflicted for a while, but ultimately, they still succumb to the disease.

Much of the research into Alzheimer's looks at the protein buildup that occurs in the brain. Preventing or reversing the effects of the beta amyloid proteins, which are believed to cause the disease, is seen as one of the primary roads to finding a cure. But "primary" doesn't mean the sole road, and Sirtris Pharmaceuticals -- whose IPO was less than a year ago -- is taking a path less traveled but one that could have equally profound results.

Resveratrol, a compound commonly found in red wine, has generally accepted anti-aging benefits, at least in lower life forms. Based on those results, to get the most benefit, people would have to drink large amounts of red wine daily, but that's impractical. Sirtris is working on a proprietary formulation of resveratrol that activates the body's SIRT1 gene and has been shown to have the potential to reverse neurodegeneration in mice. The implications for using it to treat Alzheimer's are enormous, as are implications for Type 2 diabetes and a metabolic disorder called MELAS, for which the Food and Drug Administration granted Sirtris orphan drug status.

Of course, the biotech and pharmaceutical industries are littered with potential blockbuster treatments that don't pan out, and Sirtris tests thus far have shown effectiveness only in lower life forms such as yeast, worms, and mice. The company is still in the early stages of clinical trials, and any developments are still years away. In the meantime, Sirtris has no revenue just yet, though with $118 million in cash and short-term investments, it's not in any danger of running out of money any time soon.

Such developments and potential are what has caused investors such as CAPS player jfitzge981 to believe it will be a winner over the long term.

This is a very low priced stock to be running such advanced research on such high profile [illnesses] such as Parkinson's and Type 2 diabetes. With a research program running along side MIT they have come up with a new line of drugs that attack the above illness' from a new direction. ... They are also in type 1 testing on several drugs with more to follow. I believe this company will be a break-out stock during the later half of 2009 and the beginning of 2010. Seems like a long way off, but patience makes money.

Of course, not everyone is sold. CAPS All-Star JohnLamb999 was of two minds back in January but ultimately thinks the risk is too great.

1. resveratrol may not be the only or even the most active ingredient in red wine and these effects may be mediated by more targets than SIRT1. 2. even though SIRT1 has now been shown to have intriguing effects in mice this may or may not translate to humans. 3. most new mechanisms are not efficacious and/or have mechanism based safety issues. 4. even if the mechanism is good, it is simply not that easy to make a great compound that behaves predictably in people. To do so is an expensive, time consuming [endeavor] best done by experienced folks. Generally small companies, do not have deep pockets, rush to market and don't have a lot of experience, which results in a higher failure rate.

Shine your starlight
So how will Sirtris be regarded among investors? We haven't yet heard from you, and at Motley Fool CAPS, every investor's opinion counts. Your voice could determine whether these stocks become shooting stars or supernovas. Because it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?