3 Stocks to Get on Your Watchlist

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 on 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.

What I intend to do as an experiment is 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.

Vertex Pharmaceuticals (Nasdaq: VRTX  )
Yes, I'm going to beat the dead horse on Vertex for the third time just this week! Yesterday, the FDA announced three months ahead of schedule that it was going to approve Kalydeco, the first-ever cystic fibrosis treatment that targets the underlying cause and not the just the symptoms of the disease. Kalydeco is targeted at a specific gene mutation that currently affects 4% of the U.S. population. This comes on top of Vertex's May 2011 approval for Incivek, its blockbuster hepatitis-C drug which could be the fastest drug ever to reach the $1 billion in sales plateau.

In short, I feel Vertex is going to make a killing whether it stays independent or, as I've proposed, gets acquired by a larger pharmaceutical company. Slated to grow sales at 79% in 2012, its forward P/E of just 9 seems unreasonably inexpensive. It's for these reasons that Incivek marketing partner Johnson & Johnson (NYSE: JNJ  ) would be foolish not to scoop up Vertex's burgeoning pipeline -- and why Vertex is also on my buy radar.

Rare Element Resources (AMEX: REE  )
I'm generally a metals optimist and devote a lot of my attention and even some of my portfolio space to precious metal miners. But one part of the mining sector I don't particularly care for is the rare-earth element miners. In my opinion, rare-earth metal prices have been artificially inflated by the ineffectiveness of the miners in the sector to bring these metals to market. Once competition in this sector increases, an abundance of supply should crush perpetually high rare-earth metal prices.

It's for these reasons that I tend to advocate shorting Rare Element Resources. The company, which isn't even scheduled to break ground for another year or two, is up more than 100% over the past month on very little news -- day traders are essentially having a field day with it. While I don't care for the sector, if I were an investor, Molycorp (NYSE: MCP  ) would make a lot more sense given that it does have an active mine and it is operationally profitable. By the time Rare Element joins the party, I predict rare-earth prices will have dropped dramatically from their highs.

Frontier Communications (Nasdaq: FTR  )
I've been pessimistic about Frontier for quite some time now, but its valuation has dipped to a point where even I'm starting to see the light at the end of the tunnel. Most investors are blinded by the company's current 17% dividend yield. My personal advice is to forget about the dividend because I can almost guarantee you that it's not sustainable.

What Frontier does have going for it is strong cash flow and an eight-year streak of profitability. Although the telecommunications provider has struggled to integrate part of Verizon's former business into its network, with it now valued below book and at its lowest price-to-cash-flow since 2002, even I've come to the realization that there could be some value here. My underperform rating on the stock may soon go away.

Foolish roundup
Is my bullishness or bearishness misplaced? Share your thoughts in the comments section below and consider following my cue by adding these three companies to your free and personalized watchlist to keep up on the latest news with each company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He's a total nerd when it comes to making lists. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson and Vertex Pharmaceuticals, as well as creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that believes transparency comes first.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 02, 2012, at 8:49 AM, OHGtop10 wrote:

    Vrtex seems like a good value here at approximately 20 dollars off their 52 week high. It appears that their new drug Kalydeco should improve the quality of life for about 4 percent of people with CF or 1200 people in the United States. Hopefully they can continue to build on this to provide treatment to everyone with CF or approximately 30,000 people in the United States.

  • Report this Comment On February 02, 2012, at 10:37 AM, jah609 wrote:

    A better buy for MCP is MCP Preferred A. At current price you will receive a +-8% dividend through Feb. 2014 while participating in the rise in MCP's stock price at 1.66 and 2 times .

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