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But what to put on your watchlist? In the latest entry in our ongoing series, Motley Fool Hidden Gems co-advisor and Motley Fool Stock Advisor associate advisor Andy Cross shares three companies he has an eye on for potential buys and a fourth that he's removed from his immediate buying watchlist.
One to watch
Fans of the Travel Channel, Food Network, and HGTV likely have Anthony Bourdain: No Reservations, Ace of Cakes, and HGTV Design Star programmed into their DVR watchlists. Likewise, investors who appreciate fast-growing businesses with international appeal should keep a close eye on Scripps Networks (NYSE: SNI ) , the company that owns and manages those channels and a few others. The company, spun off in 2008 from old-school newspaper and media player E.W. Scripps (NYSE: SSP ) , has made itself more appealing to affiliates and advertisers by bundling its attractive properties. While the recent acquisition of the Travel Channel from Cox Communications was expensive, it arms Scripps Network with a great deal of negotiating power with cable and satellite operators, which has allowed the company to super-charge its revenues and earnings.
The integration of the Travel Channel is still new and the stock has jumped 25% since Tom Gardner and Andy added it to Stock Advisor, so the valuation is a tad richer than Andy would like. But either a couple solid quarters at the same price or a pull-back in price before it's had a chance to truly establish its excellence would move the company from Andy's watchlist to his portfolio. In the meantime, he'll keep watching the stock and his favorite Scripps Network show, DIY Network's Man Caves.
Two to watch
When times are tight, a farmer is going to hold on to his old tractor as long as he can; a construction business likely will postpone the purchase of a new crane until the old one gives out. Financing also is harder to come by for potential equipment purchasers. And each transaction will command a lower price tag at auction as buyers have less to spend and sellers are willing to take less than they otherwise might. Those are the headwinds blustering into the face of Ritchie Bros. Auctioneers (NYSE: RBA ) , an auctioneer of industrial equipment that Andy has on his watchlist for Hidden Gems.
The price of the stock has taken a hit as a result of the tough market conditions, but the company is starting to show signs of life once again. With commodity prices for soybeans, cotton, and corn rising and financial conditions improving, farmers might be emboldened to make significant equipment purchases. And still-wary farmers might be more inclined than usual to buy used equipment instead of new, providing another possible boost to Ritchie Bros. Andy's watching commodity prices and other economic conditions as well as Ritchie's share price.
Three to watch
A year ago, I had never heard of hhGregg (NYSE: HGG ) . Today, I can't seem to escape the high-end retailer of video products, brand-name appliances, and other high-tech stuff. And that's by design.
"Their strategy is to hit a market and hit it big," says Andy. "They opened four stores in the D.C. area about the same time, and they throw tons of ad dollars into this market, leveraging their advertising across the region's stores. They're looking to explode onto the scene."
The stock price is volatile, and it took a hit when it offered poor guidance in its most recent results, in which it reported sales growth of 45%, but its comps slipped 1.5%. While management left the top end of its profit forecast at $1.45, it dropped the low end to $1.30 from $1.35. Sure, people are less likely to buy flat-screen TVs in troubled economic times. And sure, it might take D.C.-area residents time to warm to the somewhat convoluted purchase process in the stores. The chain -- and the shares -- might be preparing for a boost, but Andy wants to watch for a bit longer.
And one that got away
As Andy wrote with Tom when the duo recommended it for Stock Advisor in April 2009, "We live in an informational age, and companies that can profit from gathering and understanding that information are going to thrive. [That's why] I'm recommending Teradata (NYSE: TDC ) , a specialist in data warehousing and analytics that helps global companies make heads and tails of the volumes of data they capture." The company is very profitable, very global, and very well run, and it retains its customers at a nearly 95% clip.
Andy and Tom have had their his eyes on the company for a re-recommendation for quite some time, but Teradata's rocketing stock makes the valuation case tough to make. The company has climbed nearly 140% since that original selection, and with buyout rumors from a larger player like SAP (NYSE: SAP ) swirling, the stock shows little sign of returning to Andy's dirt-cheap buying zone. But you never know.
And that's exactly why it pays to watch. You can make smarter investing decisions with your own version of My Watchlist, new and free from the Fool. Click below to start following one of the stocks mentioned above: