3 Unloved Companies to Watch

When a company loses the technological race, finishes all available work, or makes products that many blame for killing people, some investors see plenty of reason to toss it in the "no thanks" pile. But Motley Fool Stock Advisor associate advisor Alex Scherer has added three companies with these respective traits to his watchlist and sees big potential for them ahead.

One to watch
"At Stock Advisor, we've got much love for the leadership team at Dolby (NYSE: DLB  ) and its unapproachable competitive position in sound technology," says Alex, pointing out that every film nominated in both Sound Editing and Mixing at the Oscars was done with Dolby Audio inside.

The sound powerhouse is down in the dumps as Wall Street has declared it a big loser in the tablet revolution. In computers, Dolby makes its money on the hardware that goes into the physical device -- and they made a lot more on a DVD player in your laptop than they would make on the chips in your tablet. It'll be a long fight as the world transitions to new technologies, says Alex, and Dolby will be one to watch while it happens.

Two to watch
Seacor Holdings
(NYSE: CKH  ) is what Alex refers to as a jockey play. It's ostensibly an oil-services and transport (barges running around U.S. waterways) company, but under the hood, it's really an asset management company led by Charles Fabrikant. He's in the mold of the guys at Leucadia National (NYSE: LUK  ) , looking at various businesses as much for their trading potential as for operating purposes.

"Helicopters, barges, workboats, Fabrikant buys them cheap, runs them well, and sells them dear," Alex says. Fabrikant has increased book value per share around 15% annually for nearly 20 years (although with bumps along the way ).

It had a surge of profits in 2010 from the clean-up effort around the BP spill, and ran up above book value because of it. But that's gone now, and folks holding it for that "story" got a nasty surprise when the company reported this recent quarter as the "permatorium" has left the Gulf of Mexico oil services business sitting around with little to do -- or earn. Book value is around $83 now, putting the stock at more than a 15% premium to book. "I'd like it at book value or below," says Alex. "It's been there as recently as this past October, and doesn't stay there for long."

Three to watch
For those comfortable investing in tobacco companies, Lorillard (NYSE: LO  ) is one to watch. The stock pays a dividend yield of nearly 7%, and it's grown earnings about 10% annually since coming public. 

But the company derives about 90% of its revenues from Newport brand menthol cigarettes, and menthol smokes are under the gun. The FDA has been considering banning the product, and late last month, Lorillard and compatriot Reynolds American (NYSE: RAI  ) sued the FDA for allegedly stacking the deck against them. Yet a draft report earlier this week raised hopes that the FDA might back off from a potential ban. All should become much clearer in a month or so, and while the stock may jump on good news, it may be a better risk/reward then than it is now, given the major risks at hand. That makes this company perfect for your watchlist today.

Conveniently enough, a new free service from the Fool allows you to do just that. And the moment you add a company to your watchlist, you'll have immediate access to the free report, "Six Stocks to Watch from David and Tom Gardner." Start building your watchlist today:

Roger Friedman doesn't own any of the companies mentioned, but he'll be watching them all. Dolby Laboratories is a Motley Fool Stock Advisor choice. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (19)

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  • Report this Comment On March 04, 2011, at 10:34 PM, stemcellanalyst wrote:

    Here's one especially unloved stock poised to outperform. Cephalon is leading the charge in the new wave of "biological drugs". PII results just published in Nature showed that their "off-the-shelf" stem cell drug Revascor reduced MACE (Major Adverse Cardiac Events: chest pain, heart attack, death, etc) by an unprecedented 84%. Even though they just beat earnings, raised EPS targets and have a solid balance sheet and cashflows, Cephalon has the highest short interest of any stock in the S&P 500. http://bit.ly/i1pYmr

  • Report this Comment On March 05, 2011, at 11:00 AM, vern4net wrote:

    Where does WalMart stand and is it a good stock to buy?

  • Report this Comment On March 06, 2011, at 2:41 PM, midnightmoney wrote:

    Halfhearted apogies to anyone holding lorillard stock, but I must confess I'll take more than a bit of pleasure in watching one of my government's DO ITS DANG JOB with merchants of death. Regulate em right down on their knees, right their at the clifftop, then give em the flick of death. May they then do as much for all the cig companies.

  • Report this Comment On March 06, 2011, at 2:41 PM, midnightmoney wrote:

    *governments, that is

  • Report this Comment On March 06, 2011, at 7:09 PM, TruffelPig wrote:

    Emotional about stocks? Nearly all companies would then need to be regulated down to their knees.......there is always something ethically questionable one could possibly come up with. I smoked for many years but no one forced me to smoke. I eventually stopped. Obesity, global warming, acid rain, weapons..........what would be next.

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