At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best ...
Soleil Securities is a high-stakes gambler. But perhaps it must be so. How else can a stock picker with a mediocre 53% record for accuracy get into the top 10% of investors we track on CAPS?
And why would Soleil choose Aug. 4, a date just hours before Sequenom's
There's news and then there's news
"News" being a relative term. As far as the numbers go, I expect that from any objective perspective, Sequenom's earnings news this afternoon will be dismal in the extreme. The company lost $71 million in 2009, on less than $38 million in revenue. Its operating profit margin of negative 172% for the year looks just awful relative to the 20%-ish margins produced by larger rivals Illumina
In short, while we can hope to see improvement at Sequenom this evening, don't expect to see profits in the earnings report. Rather, any good news will come in promises for future profits. According to Soleil, the best hope here is Sequenom's ballyhooed T21 DNA sequencing test for Down syndrome. It's not clear, but from the way the upgrade announcement is worded, it seems that Soleil expects that the test will be highly accurate, and that anything over the "mid-90s threshold for sensitivity/specificity [constitutes] a necessary milestone for a commercially viable T21 test."
What is clear, though, is that Soleil believes that while Sequenom may not be (read: "is most definitely not") profitable today, there's at least the chance it will become so in the future -- and that investors who get in on the ground floor today will share in those profits. But is Soleil right?
Let's go to the tape
I honestly don't know. Maybe Sequenom will wow us with the (big) size of its promises tonight. Maybe it will wow us with the (shrinking) size of its losses. All I know for sure is that so far, betting on outperformance at Sequenom has been a sucker's bet for Soleil. The previous time the analyst placed its wager on the stock, it racked up an 84-point loss to the market, thanks to the news that previous results for the T21 test were not true.
And more generally, I have to say that Soleil's record pretty much everywhere in the high-risk, high-reward health-care industry fails to impress. The analyst is scoring only 44% for accuracy in biotech, 40% for accuracy in pharmaceuticals, and a miserable 32% in the health-care equipment and supplies CAPS industry categories.
Foolish takeaway
Investing in biotech is a notoriously chancy business. Sure, you could win big in a moment when a company you've tagged to outperform receives Food and Drug Administration approval of a new drug, or gets bought out by a hungry, pipeline-deprived, member of the Big Pharma club. But you can also lose your shirt in a hurry.
Seems to me, if you absolutely must follow Soleil's advice on investing in health care, there are safer bets than Sequenom. For example, Soleil has also recommended buying shares of rising biotech Cephalon
But if you still insist on spinning the wheel on Sequenom, well, I'll cross my fingers and knock on wood for you. Hopefully, you'll fare better than Soleil did the previous time it placed the bet.
