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I follow quite a lot of companies, 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, I'd be lost when it came time to choose which stock I'm buying or shorting next.
Today is "Watchlist Wednesday," so I'm discussing 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.
Quality Systems (Nasdaq: QSII )
For the most part, it has been a painful year for health-care information system providers. Quality Systems shareholders would probably agree, with their stock hitting new 52-week lows as pessimism in the sector grows. The company has been hit by concerns that tightening government spending on Medicare could constrain hospital budgets, which, in turn, could cause its clients to put off using Quality Systems' software until sometime down the road. But are these fears unfounded? As of right now I'd say yes.
Quality Systems' biggest competitor is Cerner (Nasdaq: CERN ) , and investors have had no problem getting behind that company and pushing its stock nearly to a 52-week high and a lofty 29 times forward earnings. By comparison, Quality Systems offers a slightly faster growth rate than Cerner, but does so at a fraction of the cost -- just 18 times forward earnings. I think health-care information providers should trade largely in tandem, so as I see it, either Cerner is too expensive or Quality Systems is undervalued. I tend to believe the latter.
In the positives column, Whirlpool has been able to largely offset volume declines in Europe and North America with price increases. Although that's not an indication of true growth, it demonstrates the amazing pricing power that the Whirlpool brand has. Another key to Whirlpool's success has been its cost-cutting strategy, which has resulted in the company keeping earnings estimates unchanged for fiscal 2012 ($6.50 to $7.00 per share, excluding one-time charges).
On the downside, Whirlpool managed to shrink revenue in Asia, a region where you can seemingly throw a dart and outperform. Everyone sort of expected European sales to be challenged and knew the U.S. housing market wasn't conducive to large appliance purchases, but the 3% drop in Asia regional sales was a surprise. Currency fluctuations are also pestering Whirlpool's bottom line and making things appear worse than they actually are.
Overall, for less than eight times earnings and given its strong brand name, Whirlpool's stock is beginning to look intriguing again. If it could just wash away its European troubles, I could fully get behind the stock.
Wal-Mart de Mexico (OTC: WMMVY)
News that Wal-Mart (NYSE: WMT ) is investigating its Mexico subsidiary for allegations of bribery is never a good thing. Then again, backlash against Wal-Mart over everything from its predatory pricing strategy to its anti-labor union policy hasn't stopped millions from shopping at its superstores, either.
Regardless of what Wal-Mart's internal investigation turns up, two things are clear. One, the PR costs of this incident are far greater than any legal ramifications that may ensue. But as I just mentioned, PR follies may come and go for Wal-Mart, but they rarely affect performance. Two, WalMex's valuation, which had been getting a tad pricey, is now back in reasonable territory at just 19.6 times forward earnings. Remember, this is still a subsidiary based on Wal-Mart's low-price principles, and as such, it should be treated as a competition-crushing behemoth.
I'd suggest not buying into the panic and taking a good look at Wal-Mart de Mexico; you might be pleasantly surprised.
Is my bullishness or bearishness misplaced? Share your thoughts in the comments section below and consider following my cue by using the links below to add these three companies to your free personalized watchlist and keep up on the latest news with each company.
- Add Quality Systems to My Watchlist.
- Add Whirlpool to My Watchlist.
- Add Wal-Mart de Mexico to My Watchlist.
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