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's made that upward swing.

An astrolabe for investors
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions and accuracy of 97,000-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 and track investor sentiment to help determine the best time to invest. Let's look at some 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.

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
Cancer therapies have been receiving some outsized attention from Japanese pharmaceutical companies lately. The fourth-largest pharma in that country, Eisai, has been busy rounding up parcels of smaller candidates, but it really pales in comparison to Japan's largest drug giant, Takeda, which just snapped up Millennium Pharmaceuticals (Nasdaq: MLNM) and signed a deal with Cell Genesys for commercialization of its lead prostate-cancer candidate Gvax.

The results for phase 3 testing are still a way off, but the promise that Cell Genesys' therapy holds was enough for Takeda to try to shore up its own pipeline, where the company faces patent expiration on its top two formulations over the next few years. While shares of the development-stage drugmaker are down from a year ago, they rallied sharply on the news of the Takeda deal and have nearly doubled from their lows back in February.

Cell Genesys' desire to show its ability to partner with other drug companies, as well as its need to advance its drugs through clinical trials, had investors squaring off over the company's prospects. CAPS All-Star mamicro, with a 96.04 player rating, noted marked the company for underperformance last October: "It needs some good news to break out. The trials [aren't] far enough along." However, player Babsly figured in December that the breakout news was coming on Gvax and that some technical indicators were pointing toward a jump.

The results [of phase 2 and 3 trials] are pitched as being positive by the knowledgeable few. ... [T]he smart biotech investor knows the stock is more likely to down trend while trials of a possible blockbuster drug are in process. When results are due and the [consensus] points to positive info ... the stock will bounce with volume.

Meanwhile, tomk0508, who called almost the exact bottom with Cell Genesys, saw the vast need for Gvax outweighing the cautious stance regulators have on such drugs:

This is another small cap pharmaceutical company building biological compounds targeted toward serious disease. They have a number of interesting compounds in development with the most promise sitting behind a compound targeted toward [prostate] cancer. Again, the regulators are worried about the safety of biologically engineered compounds based on human cells but they are actually fairly safe compared to other classes of drugs and Europe's more aggressive stance coupled with the rapidly growing number of [prostate] cancer victims will force the issue and get this class of drugs into the market where they will likely to quite well given the low toxicity and the positive early trial results.

Shine your starlight
So will Cell Genesys continue to partner for higher growth? Let your voice be heard! At Motley Fool CAPS, every investor's opinion counts, and your voice could determine whether these stocks become shooting stars or supernovas. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?