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Small-Cap Standout: Sequenom, Inc. (SQNM)

Low expectations surround SQNM, despite its recent rebound

by 11/21/2013 11:40:00 AM
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Small-cap stocks -- those that typically hold a market valuation of roughly $300 million to $2 billion -- often allow investors the opportunity to trade at a lower cost. Three names within this sector that could potentially offer up a contrarian play are genetic testing firm Sequenom, Inc. (NASDAQ:SQNM), teen retailer Aeropostale Inc (NYSE:ARO), and computer concern Logitech International SA (USA) (NASDAQ:LOGI). As of Wednesday's close, the market capitalizations for these three companies stood at $313.25 million, $787.84 million, and $1.70 billion, respectively.

Aeropostale Inc (NYSE:ARO) is higher today, amid rumors the company could put itself on the bidding block, and at last check was up 4% to trade at $10.43. Since hitting its most recent low of $8.07 on Nov. 8, the equity has added 29%. With short interest accounting for 35.5% of the stock's available float, Aeropostale could benefit from a short-covering rally, should it continue its recent uptrend.

Elsewhere, not a single covering analyst deems Logitech International SA (USA) (NASDAQ:LOGI) worthy of a "buy" or better rating, even though the stock has tacked on an impressive 45% in 2013 to linger near $10.97. What's more, the stock hit a fresh 52-week peak of $10.99 this morning on speculation that the company could return cash to shareholders. A deeper move into annual-high territory could have some of the skeptical brokerage bunch reevaluating their ratings on the outperforming equity.

An initial glance at Sequenom, Inc. wouldn't necessarily instill confidence in most traders. However, the stock has been making technical amends since bottoming out at a seven-year low of $1.65 on Nov. 6, with the shares up nearly 67% to $2.75. This rebound has Sequenom on track to notch its first weekly close north of its 10-week moving average since mid-July. What's more, this trendline has recently resisted the security's advances, but could now be in a position to serve in a supportive role.

Given SQNM's longer-term technical struggles, the sentiment surrounding the stock is bearishly skewed. In the options pits, the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.69 ranks in the 96th percentile of its annual range. In other words, puts have been bought to open (relative to calls) with more rapidity just 4% of the time within the past year.

Elsewhere, short interest accounts for nearly one-third of Sequenom's available float, translating into almost six sessions' worth of pent-up buying demand. Going forward, an unwinding of this bearish sentiment in the face of SQNM's extended bounce could help propel Sequenom, Inc. (NASDAQ:SQNM) even further up the charts.

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