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 up to a stock until after it has started to make that swing.

An astrolabe for investors
But Motley Fool CAPS' 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 to help determine the best time to invest. Let's look at companies that had been rated one or two stars but have recently enjoyed a bump in confidence to see whether the stars are aligning in their favor.

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 minds in CAPS are taking notice of these stocks, maybe we should, too.

The sun's always shining somewhere
Stem-cell research may become the new dot-com-like mania, so investors would be wise to use caution. Even with President Obama in favor of such research -- and StemCells (NASDAQ:STEM) and other such companies got a nice boost after Election Day because of it -- executive orders can only do so much. It's going to take success to weed out the players from the pretenders.

So it seems Sangamo BioSciences might fit the bill. It's working on a gene therapy that's related to the incredible story last month about a therapy an AIDS patient used to not only permanently stop taking the mix of drugs he had been on for a decade, but also to cure his leukemia. (Reports that the patient was also able to walk on water afterward have not been substantiated.) Little wonder, then, that Sangamo's stock got a bit of a boost, as did that of StemCells, Geron, and Aastrom Biosciences.

Yet in the weeks after the story, shares of most stem-cell researchers have declined dramatically. Much of that might be because of the latest market downturn, but the stem-cell companies are down even more. What that points to is investor exuberance that's very reminiscent of the tech bubble, if not similar manias. Investors start chasing a story instead of the company. They're reacting instead of investigating. Not all companies will benefit equally, and careful due diligence is required.

Some investors are doing that already with Sangamo. For example, its zinc finger nuclease is generating debate among members of the CAPS community. skepticalbuyer is convinced it's the future of gene therapy, while pick1998 believes it's not yet ready.

I can name many of reasons to short [Sangamo] (failed neurological pain trial, low cash, basic science of gene therapy...). In one sentence, I think this zinc finger is not yet for human therapy. It may be good for plants, because you can breed a new variety by screening millions of transgenic plants. It is not practical in human [beings].

While sounding like some '70's rock band, the company's zinc finger construct is a protein transcription factor to regulate stem-cell differentiation. And, it seems to hold enough potential for Pfizer (NYSE:PFE) to sign a licensing deal with Sangamo for $3 million.

Shine your starlight
So are these stocks driving ahead or ready to crash? 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 stocks you think are shooting stars or supernovas. It's free to sign up and post your thoughts, so why not use this opportunity to take your star turn?