3 Stocks to Get on Your Watchlist

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 (NYSE: WLT  )
Walter Energy has pretty much remained under the radar on my list of coal stocks that are looking attractive; consider it under the radar no longer!

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.

Foolish roundup
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:

Don't let your search for great stocks end here. Consider getting your copy of our latest special report: "The Motley Fool's Top Stock for 2012." This report details a company that our chief investment officer has described as the "Costco of Latin America," and it's yours for the low, low price of free -- so don't miss out!

Fool contributor Sean Williams owns shares of Bank of America but has no material interest in any other 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 Bank of America and Citigroup. Motley Fool newsletter services have recommended buying shares of Walter Energy. 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.


Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

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 June 13, 2012, at 10:24 AM, orderartwork wrote:

    1.In the company's most recent earnings report, Pandora showed that total revenue grew 58%, however, content acquisition costs increased by 91.43%. The problem with the Pandora model is the more a song is played, the more the company has to pay for royalties. This isn't a model where more users means more profits. Quite simply, more users means more costs. While the popularity of the service is apparent with 53% active user growth, and 92% growth in listener hours, this does not equate to bigger profits.

    2. While the company might want its future growth to be based on subscriptions, this part of the business is not only growing slower, but also is only 20% of total revenues. Advertising is Pandora's main revenue driver and is growing faster so the company needs to stick with what it does best.

    3.Pandora to be a serious competitor to SiriusXM (NASDAQ: SIRI). There is one big hole in this theory. The difference between Pandora and SiriusXM is, in most cases SiriusXM is built into the vehicles' sound system versus Pandora usually has to be connected through a smartphone. Though streaming music through a smartphone isn't a terrible idea, it does require both a strong enough signal for quality sound, and it uses data from the individual's data plan. Since signal strength is unpredictable and data usage is more desired for apps and information, this wouldn't seem to be a great trade-off.

    4.the company is in competition with multiple other innovators that offer similar and in some cases better service. A great example is Spotify, this service allows you to listen to the actual songs or albums you choose without having other songs chosen for you. While it's a little more expensive if you want to port this to a device like an iPad, the service allows you to have as large of a music collection as you want without worrying about storage on your device. Since both services are offered for free online, Spotify would seem to be a better option than Pandora on a traditional computer.

    5.The music business is constantly changing, and Pandora does offer a great service. However, until the company can change its licensing costs to a different structure, I don't see big profits in the future. Gaining more listeners, who use the service more often, will result in actually higher costs. A business that grows its costs at least as fast as revenues is not going to be a great investment. Love the service, but I won't be buying the stock anytime soon.

  • Report this Comment On June 13, 2012, at 10:37 AM, doubting wrote:

    Sean,

    I disagree with your statement below,

    "Being cash flow positive is a step in the right direction, but it's going to take more than the $14.8 million in 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..."

    My basic question for you IS why you are cherry picking the facts and pullinjg the data out of context. To be consistent and ethical, you should have said that today siri has about $800M in the bank and it will have another 700M by the end of this year. As you can see, siri is turning into a cash machine.

    Q1 is historically the most expensive quaretr for siri in terms of cash beacsue of huge prepayments to save expenses. This year the company will most likely spend another $300M to retire debt and will end up with $1.2B. 2013 will most likely see another $1B of fcf due to further merger synergies and and much higehr profits and margins.

    Debt is no longer an issue with siri and you are at least two years late with your debt concerns.

    Siri's real concern today is the UNCERTAINTY with Liberty Media Corp. I hope we will know the outcome of their fight this summer. As to the company performance and balance sheet, it is a dream come true. Sirius is going to be the most profitable company in its industry (in terms of PROFIT MARGIN) and one of the most profitable on the market in general.

  • Report this Comment On June 14, 2012, at 1:59 AM, lanceim59 wrote:

    This author is an idiot. No banks should be on any watchlist.

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