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These Stocks Stopped the Presses

Rich Duprey
July 18, 2012

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-strongĀ 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