When a stock's share price is lower than a North Dakota thermometer in February, investors tend to give it the cold shoulder. But as fortunes change and the market warms to a stock's prospects, its price can heat up in a hurry. Unfortunately, it's hard to tell that a stock is melting investors' hearts until after it has made that upward leap.
Taking the market's temperature
But Motley Fool CAPS' proprietary ratings, aggregated from the opinions of 180,000-plus members, offer a great way to monitor investor sentiment. Following a CAPS rating trend, we can find previously low-rated companies that have recently enjoyed a bump in investor confidence and see whether they're truly heating up -- or headed back to the deep freeze.
Today we see that biotech MannKind (Nasdaq: MNKD) and Sirius XM Radio (Nasdaq: SIRI) have moved from a two-star rating on CAPS to three stars. Obviously, you don't automatically buy them; rather, this becomes a starting point for further research. Yet if some of the best investing minds are taking notice of these stocks and upgrading their estimation of their prospects, maybe we should, too.
Caution: Contents may be hot
On the surface it seems MannKind should be successful with its lead investigational drug, Afrezza, an inhalable form of insulin therapy. The fast-acting vaporized drug has made it through the FDA's regulatory maze, and now MannKind only has to prove the efficacy of the delivery device to keep the agency from standing to thwart approval. The inhaler it wants to bring to market isn't the one it used in the trials, so it will need to prove the inhaler is equivalent.
While that's the regulatory case, it's not the whole picture. There's competition, past and future, and there's the question of whether MannKind can wait out the FDA's decision-making timetable. It's well-known that Pfizer (NYSE: PFE) had a disappointing run with inhalable insulin and lost almost $3 billion on the venture before shutting it down. Novo Nordisk and Eli Lilly (NYSE: LLY) quickly followed suit, canceling their programs. On the horizon is privately held Dance Pharmaceuticals, though it's still years away from even coming close to bringing a drug to market.
On the financial side of the ledger, Alfred Mann has committed to financing his company's efforts, but it's an expensive process, and stock offerings dilute current shareholders. Then again, he has also shown a willingness to put his own money where his mouth is, having invested more than $1 billion of his own cash into the company's success.
CAPS member TMFMassimo would love to see Afrezza come to market, but he still feels the many risks outweigh the potential for success, noting, "It has been relying on its CEO for cash injections and had major job cuts last year. Its financial status is fragile to say the least."
Tell me in the comments box below whether you think MannKind is the kind of biotech that will beat the odds and successfully bring its drug to market.
Free to choose
By simply continuing to broadcast a signal, Sirius XM Radio could be said to have won. Gone are the days when it seemed the satellite radio operator would be filing for bankruptcy, but now the question is whether it will remain a stand-alone company or be completely consumed by Liberty Media. John Malone is poised to acquire more than half the outstanding shares of Sirius, and he has filed to take control of the company.
Liberty certainly would use Sirius as a catalyst to boost its own performance, as analysts have approvingly noted. But there's still the lingering suspicion the merger would be more of a tax-avoidance scheme on Malone's part wherein he created a Reverse Morris Trust and spun off the satellite radio station to save on his tax bill.
Sirius has been vocal in its opposition to being acquired by Liberty -- if not for a premium, at least -- despite the fact that it owes its existence to Liberty, whose intervention saved it from oblivion. But the market seems excited about the union, sending Sirius's shares to levels they haven't seen since 2008.
There's still a large contingent of critics of the company on CAPS, where topics of debate include the impact of Howard Stern as a prime mover for subscribers, whether mobile media will do it in, and whether competition from Pandora (NYSE: P), Spotify, and Slacker will eventually erode its success. Weigh in yourself on the Sirius XM Radio CAPS page or let us know below if you think an acquisition by Liberty will set it free.
Checking the mercury
A new premium report on Sirius XM Radio that further details the challenges and opportunities awaiting investors who are both long and short the dynamic media giant is available for the asking. A year of updates is also included with the report. Check it out now.
