I follow quite a lot of companies -- some more closely than others -- so the usefulness of a watchlist to me cannot be overstated. Without my watchlist, I'd be unable to keep up with my favorite sectors and what's really moving the market. Even worse, without my watchlist, I'd be lost when it came time to choose what stock I'm buying or shorting next.
As an experiment, I intend to make every Wednesday "Watchlist Wednesday," where I'll discuss three companies that have crossed my radar in the past week and at what point I may consider taking action on these calls with my own money. Keep in mind, these aren't concrete buy or sell recommendations, nor do I guarantee I'll take action on the companies being discussed weekly. What I can promise is that you can follow my real-life transactions through my profile, and that I, like everyone else here at The Motley Fool, will continue to hold the integrity of our disclosure policy in the highest regard.
Valero Energy (NYSE: VLO )
I know it's difficult, but you need to ignore the recent earnings weakness in the refining sector and think of this a long-term play. Valero cautioned investors on Monday that its fourth-quarter results would be nowhere near Wall Street's estimates of $0.43. In fact, Valero noted that weak margins on refined products would produce only breakeven to $0.10 in earnings per share for the quarter, nearly mirroring Tesoro's (NYSE: TSO ) earnings warning two weeks ago where the company alluded to a sizable fourth-quarter loss.
Even taking into account the cyclicality and low-margin nature of Valero's business, the company has been largely profitable throughout the years and is a long-term cash cow. Valued at a mere six times forward earnings, Valero is at arguably its cheapest valuation in a decade. Tack on a 1.4% dividend yield, and you have what I deem a pretty argument to buy the stock.
Energy Conversion Devices (Nasdaq: ENER )
Sometimes the stock market confuses the heck out of me -- and this is one of those occasions. Energy Conversion Devices announced last week that it had made an interest payment on a debt obligation that it had previously deferred, satisfying its current obligation on the debt. Although this is reason to celebrate for bulls (a greater than 300% jump in a week), I would hardly call this news any reason to cheer the stock higher.
For starters, Energy Conversion, a maker of solar panels in the U.S., suspended production last year because of oversupply issues. Having produced nothing since then and considering that solar prices haven't stabilized in any way, form, or shape, there's still little hope in my eyes that this company will survive without restructuring under bankruptcy protection. Also, when the company does hope to recommence production, it's going to need cash -- cash that will likely mean future dilutive share offerings. Shareholders have little to hold onto here, and I'd be looking to buy puts on any future pops higher.
Cabot Oil & Gas (NYSE: COG )
In my marathon blogs, I often referred to Cabot as one of my favorite oil and gas plays. Last year, the stock finally met its potential by gaining 101% for the year. Unfortunately, I think Cabot's shareholders may have stretched the company's valuation to the breaking point.
With natural gas prices plummeting through the $2.50-per-million-BTU barrier yesterday, it clearly looks like natural gas companies are in for a rough year. Although Cabot has its oil business which it can rely on, Cabot's natural gas business could weaken enough to become a serious drag on its 2012 earnings -- and here's a news flash: Cabot isn't all that cheap to begin with. Valued at 30 times forward earnings and paying out an insulting 0.2% dividend yield, it's time for you and I to move onto bigger and better things in oil and gas. I'm tinkering with the idea of buying puts on Cabot at these levels.
Is my bullishness or bearishness misplaced? Share your thoughts in the comments section below, and consider taking my cue by adding these three companies to your free and personalized watchlist to keep up with the latest news on each company.
- Add Valero Energy to my watchlist.
- Add Energy Conversion Devices to my watchlist.
- Add Cabot Oil & Gas to my watchlist.