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.
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.
- Add Vertex Pharmaceuticals to your watchlist.
- Add Rare Element Resources to your watchlist.
- Add Frontier Communications to your watchlist.