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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 the time came 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.
Sirius XM (Nasdaq: SIRI )
Putting my bias against the radio in general aside, Sirius XM is looking better and better by the day. The satellite radio provider has managed to capitalize on a still unsettled automotive market and drive both advertising revenue and subscription growth in recent quarters.
The key to Sirius' growth has been that 82% of its more than 22 million subscribers are self-paying customers. That's in stark contrast to Pandora Media (NYSE: P ) , which relies on advertising revenue to drive results and has just a small fraction of premium paying members. Being the first satellite provider to get its product to market, Sirius holds negotiating advantages with regards to content that Pandora simply can't compete with.
If there's one negative, it continues to be Sirius' crippling debt. Although the company was saved by a capital injection from Liberty Media, simply sweeping its debt problems under the rug isn't a long-term solution. Being cash flow positive is a step in the right direction, but it's going to take more than the $14.8 million it generated in the first quarter to make a dent in the $2.6 billion in debt currently on its books. These are baby steps, but nonetheless they're steps in the right direction for the once-hated Sirius XM.
Walter Energy's latest quarterly results signified a sizable jump in operating costs ($136.05/ton versus $96.55/ton) over last year despite the fact that its metallurgical coal output nearly doubled. Most of that increase was because of its acquisition of Western Coal, but it was also to make up for shrinking margins. Working in Walter's favor is the fact that 80% of its production is hard-coking coal, a higher-margin product than pulverized coal-injection coal.
Clearly, Walter needs a rebound in the U.S. steel industry for its pricing and demand to see notable gains, and it's very possible that while it held its guidance steadfast, there could be further deterioration in its profitability. Walter also comes with $2.3 billion worth of extra baggage in the form of debt. Yet Walter's hard-coking coal business looks to be a long-term winner, and I highly doubt operating costs will head much higher than they are now. I'm notably cautious but optimistic that Walter is nearing a bottom.
Bank of America (NYSE: BAC ) & Citigroup (NYSE: C )
I'm going to give you a bonus today and throw a third and fourth company into the mix. Bank of America, a core holding of mine, and Citigroup have both fared particularly badly over the past few weeks as the debt situation in Europe is worsening (e.g., Spain needing up to a $125 billion bailout), and the historical growth avenues available to these companies simply aren't there anymore. Add on that these two banks are still dealing with legal issues relating to the way they handled and processed foreclosures and there are plenty of reasons to be leery.
Then again, Bank of America and Citigroup are trading at just a fraction of their book values -- 37% and 43%, respectively -- and they've worked hard to increase their tier-1 capital ratios (a measure of equity that determines how well capitalized a bank is) by selling off non-core assets. Don't underestimate the ability of these larger banks to innovate new ways to charge their members fees and generate extra revenue. Both are compelling turnaround candidates at these levels.
Is my bullishness or bearishness misplaced? Share your thoughts in the comments section below, and consider following my cue by using these links to add these companies to your free personalized watchlist and keep up on the latest news with each company:
- Add Sirius XM to My Watchlist.
- Add Walter Energy to My Watchlist.
- Add Bank of America to My Watchlist.
- Add Citigroup to My Watchlist.
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