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 130,000-plus members, 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 previously rated one- or two-star companies that have recently enjoyed a bump in investor confidence, and see whether the stars are really aligning in their favor.

Company	CAPS Rating (out of 5 max)	Recent Price	Next Year EPS Growth Est.
Allegheny Energy (NYSE: AYE  )	***	$23.01	28%
AMAG Pharmaceuticals (Nasdaq: AMAG  )	***	$32.53	96%
Energizer Holdings (NYSE: ENR  )	***	$48.47	14%
Guess? (NYSE: GES  )	***	$17.87	23%
Sequenom (Nasdaq: SQNM  )	***	$15.60	38%

Source: Motley Fool CAPS, Yahoo! Finance.

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. 

The sun's always shining somewhere
There's a time and place for everything, and it looks like genetic diagnostic testing concern Sequenom is in the right place at the right time. It's poised to market a test that can check for Down syndrome much more safely than amniocentesis. That process, which involves inserting a needle into the amniotic fluid surrounding the fetus, is fairly accurate but has been known to cause miscarriages.

In contrast, Sequenom expects to be first to market this June with its SEQureDx, which has shown incredible accuracy of its own. The tested turned up just one false positive out of more than 850 samples run, and identified every case of Down's syndrome. That puts it on par with amniocentesis's accuracy, but without the same safety concerns.

Of course, that's not to say there aren't other objections raised. Anti-abortion activists, for example, are concerned that, with the ability to identify and analyze tiny bits of genetic data from the fetus that circulate in a woman's bloodstream during the first trimester of pregnancy, parents will decide to opt for an abortion of any less-than-perfect child. Down syndrome is the most commonly occurring chromosomal condition, with one in every 733 babies born with the condition. That's about 5,000 new cases every year. The syndrome results when a baby has three, rather than two, copies of the 21st chromosome.

Sequenom attempted to add to its diagnostic testing profile earlier this year by bidding to acquire EXACT Sciences (Nasdaq: EXAS  ) in a deal valued at $41 million. Ut was rebuffed when the biotech instead sold the prenatal and reproductive health assets in which Sequenom was interested to Genzyme (Nasdaq: GENZ  ) for $24.5 million.

With the summer launch of SEQureDx, excitement should begin to build behind Sequenom's stock. Investors should be aware, though, that several tests on thousands of patients are currently underway. The results won't be available until later this year, or into 2010 -- well after the diagnostic test has been launched. Should the results prove less than expected, Sequenom's stock might suffer a setback. By the same token, the stock would undoubtedly prove to be the rule breaker some think it already is if the trials confirm the accuracy and safety that has been exhibited thus far.

Numerous top-rated All-Star CAPS members have recently agreed that Sequenom is ready for prime time and will outperform the market going forward. Although the firm has only just recently earned its three-star rating on CAPS, 85% of the CAPS All-Stars who've rated it have a positive outlook on its future.

Shine your starlight
It pays to start your research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Then weigh in with your own thoughts on which of these stellar stocks you think are burning brightly, and which might be ready to collapse. Since it's free to sign up and post your thoughts, why not use this opportunity to take your star turn?