Not Even Dow 13,000 Could Help These Stocks

The lasting effects of the European Central Bank's promise to save the euro and hopes for further Federal Reserve stimulus sent the Dow soaring another 187 points on Friday, breaking through the 13,000 barrier for the first time in months. Some companies had their own problems to contend with though and couldn't join in the fun, managing to go in the other direction, some plunging by double-digit percentages.

So let's see whether they had good reason to drop, as sometimes panic-fueled declines can lead to excellent buying opportunities.

Company

Friday's Change

Price

CAPS Rating (out of 5)

Sequenom (Nasdaq: SQNM  ) (12.3%) $3.20 ***
Amarin (Nasdaq: AMRN  ) (11.8%) $13.51 ****
Facebook (NYSE: FB  ) (11.7%) $23.71 *

Flying blind
Losses widened in the latest quarter for biotech Sequenom, but I think the market's reaction was misguided as even analysts admit they're unable to get a handle on how its MaterniT21 Down syndrome test is affecting results. Since revenues lag expenses and volumes are on the rise, it seems premature to sell off the stock now. Because the test is still relatively new to market, it's going to take a few more quarters to get a better sense of its potential, but the early indications are hopeful.

Of course, there are still risks here, as Sequenom failed to win an injunction against upstart Ariosa, which it charges is violating its patents. With a test that costs less than half of what the MaterniT21 test goes for and an agreement with Labcorp to distribute the test through its 1,000 centers, there's the chance it will gain market share at Sequenom's expense.

But the MaterniT21 seems to be picking up steam despite the competition. At the end of the first quarter, Sequenom reported that more than 4,900 tests were accessioned, which equaled an annual rate of 30,000. They said that by the time earnings were published, the run-rate jumped to 45,000. Now with second-quarter results out, more than 13,000 tests were accessioned and the run rate has jumped to 65,000 tests. It's for these reasons I think the market overreacted.

Let me know in the comments section below or on the Sequenom CAPS page whether you agree its new, lower price makes it a much more interesting investment opportunity.

A dry bed
Similarly, I think the sell-off in Amarin's stock is wrongheaded because it doesn't fully weigh the monster potential of its high triglycerides medication AMR-101. Despite getting FDA approval for the drug, which will now be called Vascepa, the market reacted to the limits placed on the drug, since it's approved for a much smaller population than what it sought.

It was also left up in the air whether Vascepa will qualify as a new chemical entity, which would give it a five-year window of exclusivity compared with just three. With that decision coming by mid-August, it will probably determine how much an acquirer is willing to pay for Amarin as the longer period without generic competition will undoubtedly be worth more to Pfizer (NYSE: PFE  ) , Abbott Labs (NYSE: ABT  ) , or even GlaxoSmithKline, which market's Vascepa's competition Lovaza.

As there seems little doubt Amarin will be acquired -- even management says it's exploring the option -- and there's still a large enough market opportunity to make it worth someone's while, the discount given Friday ought to be attractive to investors. Head over to the Amarin CAPS page to share your opinion on whether the sell-off was much ado about nothing.

Unfriending Facebook
The one stock I thought deserved the haircut it got Friday was Facebook. Its IPO was a disaster, and the warning that its investment advisors withheld from the IPO roadshow that growth was slowing, made itself evident in the earnings results the social-media giant released last week. Despite beating analyst expectations with 32% revenue growth, it was slower than earlier this year and from previous years. Much of the hype of the IPO was on exponential growth rates; the severely discounted stock now reflects the more sober assessment.

I've had an underperform rating on CAPS almost from the beginning, and even though the stock has been cut in half from the highs it hit initially after its debut, I think Facebook has further to fall. As CAPS member kpoeppel says, Facebook "is a nice tool, but it's not making enough money to justify [its] price." I'll be maintaining my rating, but you can tell me in the comments box below or on the Facebook CAPS page at what price you think it will be able to find more friends in the market.

Ready for a resurrection
Sometimes paying a dividend can make it worthwhile to wait for the storm to pass, but Facebook doesn't offer even that cold comfort. But check out a new Motley Fool report singling out the three Dow companies that dividend-craving investors need to own. It's a free report, so download your copy now!

Fool contributor Rich Duprey owns shares of Pfizer, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Facebook and Abbott Laboratories. Motley Fool newsletter services have recommended buying shares of Facebook, Laboratory of America Holdings, and Pfizer. 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.


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  • Report this Comment On July 31, 2012, at 11:18 AM, yazzbro wrote:

    Bad info here on AMRN. They got the entire label they applied for. So to say they didn't get the label they were looking for is false or misinformation. The FDA could have given them MORE than they applied for but, they didn't. However, after the Reduce-It study is complete they can apply for the larger label.

    Amarin will be bought out and probably sooner than later especially if they feel they need to launch the product in the first half of next year.

    The way the stock is trading right now suggest that there is some manipulation going on and the pros are trying to shake the weaker hands out of the game.(Yes "manipulation"..This is Wall Street it happens all the time.) Also there are articles out there suggesting to the fact that insiders sold before the FDA decision because they know the NCE status isn't going to come to fruition.) The fact is, is that insiders too advantage of a window to sell and they sold after enjoying a pretty nice run up in share price up into the FDA decision. Any other interpretation should be treated with caution and is not based in an factual evidence.

  • Report this Comment On July 31, 2012, at 3:59 PM, Haggis3000 wrote:
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