The Dow Did Better Than Even These 2 Stocks


The markets moved higher yesterday, as traders apparently think China can endlessly stimulate its economy without repercussion, but the government's own news outlet, Xinhua News Agency, says there aren't any plans for another massive stimulus in the works. That ought to make the traders gloomy again.

But some companies were already turning tail and falling while the markets rose, so first let's see whether they had good reason to drop. Sometimes, panic-fueled declines can make excellent buying opportunities.

Good enough
Cystic fibrosis treatment Kalydeco is still an effective treatment for patients when taken with experimental drug VX-809, only it's not as effective as Vertex Pharmaceuticals (NAS: VRTX) initially led the market to believe earlier this month.

Oops. While the biotech blamed the error on an outside vendor's misinterpretation of data, Vertex is still ultimately responsible for the information disseminated. And it could have repercussions down the road if investor confidence in its ability to accurately report data is doubted. Sequenom's (NAS: SQNM) reputation was damaged in the aftermath of its mishandling of data for its MaterniT21 Down Syndrome test several years ago.

It was Vertex's report on May 7 that 46% of patients who received the drug combination experienced an absolute improvement in lung function that sent the stock soaring 55% higher on the news. Turns out the unnamed vendor doing the statistical analysis doesn't know the difference between the terms "absolute" and relative." In reality, those numbers represented the percentage of patients who achieved a relative improvement in lung function, which is typically orders of magnitude less than an absolute improvement. Yesterday, Vertex admitted it was really just 35% of patients receiving the drug duo that had an absolute improvement.

Considering the market only took down Vertex's stock 11% over the snafu, it seems they're willing to cut the biotech some slack, no doubt because it's still a relatively effective treatment, just not as much as previously thought.

Just don't count CAPS member justaboutperfect among those so forgiving: "When a Biotech misleads and overstates results from tests to investors, its game over and management should resign and give all their stock options back."

Management was apologetic on the conference call, saying that's not how they do business. They want to get the science right and the numbers. Is an apology enough? Add Vertex to your Watchlist and then tell us on the Vertex Pharmaceuticals CAPS page or in the comments section below whether you think a more severe form of punishment needs to be meted out.

Out of tune
I've been bearish on Pandora Media's (NYS: P) prospects since its IPO, and while not a regular user of the service (I've only tuned in a time or two), I don't see how it will be able to overcome mounting competition to become a worthwhile investment. The service might be fine for those listening in, but it's a different matter when trying to figure out whether you should put your money into its stock.

Yesterday's news that Samsung is introducing a music service for its Galaxy handset ostensibly to compete against Apple's (NAS: AAPL) iTunes is just another nail in Pandora's coffin. It will continue to drain money from its coffers and becomes another in the growing list of rivals, including Sirius XM Radio (NAS: SIRI) , Spotify, and Rhapsody.

While some Pandora adherents may liken Samsung's effort to the Music Unlimited service launched by Sony last year that let you instantly stream songs, sync your music library, and create personalized playlists -- just like every other service out there -- but which hasn't really made a mark, the difference is Samsung's reach. As the dominant Android-based handset maker, its music player could have a much greater impact.

Although I'm dubious about its ability to be an Apple-killer, I do think it has the potential to run Pandora into the ground, and so does the market, which sent its shares tumbling 10% yesterday.

As a result, I'm not changing my CAPScall on Pandora, where I previously rated it on CAPS to underperform the market, but tell me in the comments section below or on the Pandora Media CAPS page whether you agree the stock is doomed, if not service itself, and then add the music player to the Fool's free portfolio tracker to see whether it can hold a tune.

Ready for a resurrection
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At the time thisarticle was published Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Vertex Pharmaceuticals and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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