After all we wrote about Sequenom (SQNM), it looks as if we are somehow destined to further tackle this firm. Sequenom’s story is still unfolding. What happened to this firm’s stock this month reflects a general reality that goes beyond Sequenom, on Wall Street and off Wall Street. When some influential leaders decide to become misleaders, sincere observers and followers must develop protective strategies that help them accept or reject what the influential try to feed them. In the stock market, negative speculators have the advantage of possessing a superior weapon called fear, which positive analysts do not really have. Under some circumstances, by definition, negative becomes the synonym of fear. When people fall to fear, they cannot wait for rational explanations of negative speculation. They believe they have no time to lose in resorting to common sense. They feel compelled to escape from the source of their fears. In the stock market, this translates into selling the stock that somebody labeled as bad.
Assessment of public firms by positive and negative analysts is the kinetic energy behind the millions of shares traded daily, which makes the stock market so interesting and attractive. The war between the two opposing groups is excellent for traders who know how to synchronize their buying and selling with optimistic and pessimistic articles. Serious investors, though, those who really care about investing in promising firms, must have a plan to protect themselves from developing unfounded fear or baseless euphoria. The plan is simple. Look for facts that support the claims.
In the past few weeks, investors in SQNM got lost between the positive and negative analysts. The stock was around $5 when some analysts upgraded it, with one putting $16 as his SQNM target price. Investors rushed to buy SQNM. As the stock crossed $8 with very strong momentum, suddenly, negative articles demeaning the stock emerged. We were not convinced. The only fact they cited was the firm’s financials, which had nothing to do with our positive feeling towards the stock. As we said in our previous article, what motivated us to love Sequenom in the first place was our belief that the firm’s promises could generate billions of dollars for its shareholders. These promises are supported by the firm’s successful marketing of three tests; two of them relate to Sequenom’s non-invasive nuclear prenatal program. Moreover, one of Sequenom’s tests has enabled the distinction between maternal and fetal DNA for both male and female fetuses, which led us to believe that there is sufficient validation of the firm’s technologies behind the non-invasive prenatal test program.
After enormous efforts to cause a sell-off of SQNM through incessant negative campaigns of fear, the fear finally supervened. Helped by preprogrammed selling the stock lost around one third of its value. Tuesday, we heard that Lazard Capital Markets analyst Dr. Sean Lavin upgraded his outlook to "Buy" from "Hold" with a $13 price target, citing the potential for the company to create a test for Down syndrome. The stock rebounded fiercely through a different kind of fear this time, i.e. losing a huge investment opportunity. Lavin said the company will likely create a test for Down syndrome with third-party data showing it to be more accurate than current screening. He said the nearly 30 percent drop in the stock value last week is an opportunity for investors. "We anticipate Sequenom finishing development of a Down (syndrome) test this year, running external trials in 2011, and launching a test in late 2011 or in 2012," he said in a note to investors. He said the company has risks, but its target markets are "too immense" and a successful test is too likely. In the U.S., the company could target a market worth more than $4 billion. With all that said, he added, an investment in the stock is "speculative and risky."
That’s what sincere analysts should say – to mention the risk and the reward. In Sequenom’s case, the reward is huge. The successful outcome of Sequenom’s tests will not stop at the two that have been launched and the expected successful outcome of the one for Down syndrome, but open the door to many tests, which would be big.
Disclosure: LONG SQNM