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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.
Broadcom (Nasdaq: BRCM )
While most of Apple's (Nasdaq: AAPL ) iPhone 4S component suppliers are partying hard and riding Apple's coattails higher, Broadcom appears to have been left behind. But should it languish while its peers thrive? I don't think so.
Broadcom had already maintained its socket contract with Apple from the iPhone 4 but made waves when it added a very lucrative deal to supply one of its newer technologies, a Wi-Fi/Bluetooth/FM radio chipset, for the 4S. Broadcom won a similar contract with Samsung to put this connectivity technology in the Galaxy S II handset. Almost half of Broadcom's revenue comes from its wireless connectivity products, and Apple is now responsible for nearly one-quarter of that revenue. To put it another way: The better Apple does, the better Broadcom should do.
In Apple's most recent quarterly report, it noted that iPhone sales skyrocketed to 35.1 million units, an 88% increase over the year-ago period. That's big money for Broadcom and probably assures it a big role in the next-generation iPhone, highly anticipated to be out later this year. Tack on the fact that Broadcom's dividend is currently yielding just over 1%, and you have the makings of an undervalued wireless applications company.
Joe's Jeans (Nasdaq: JOEZ )
if it's not one thing, it's another for high-end denim producers.
High cotton prices were the scourge of apparel makers through most of 2011, as the primary component in high-end denim products crimped margins. That's one of the reasons Joe's Jeans swung to a fiscal loss in 2011 and why True Religion Apparel (Nasdaq: TRLG ) needed to temper its growth expectations.
Cotton prices, though, are no longer the main worry of apparel makers, with the cost per pound having droppe6d below $0.70 from its peak above $2.20 in March 2011. Instead, instability in Europe and a slowdown in global growth appear to be curbing the spending habits of the rich.
Joe's is a fan favorite around Motley Fool CAPS, but I'm not sold that it'll turn things around. Despite a similar growth rate to True Religion, Joe's is only marginally profitable. True Religion, on the other hand, trades at a lower multiple and boasts more than $8 in cash per share with no debt. I check up on Joe's Jeans frequently thinking it may be about to turn the corner, but it has yet to truly impress me. The real question is: How many more opportunities should I give Joe's to prove itself?
Exide Technologies (Nasdaq: XIDE )
Talk about a stock that could pivot either way!
Exide Technologies, a manufacturer of lead-acid batteries for industrial and transportation purposes, is cheap -- no two ways about it! At less than 5 times forward earnings and just 66% of book value, Exide has to be crossing the radar of value-minded investors looking for a rebound candidate. Exide has a well-known brand name and has worldwide product diversity.
What Exide also has is a lot of debt. It's nowhere near the $2.5 billion that caused the company to file for Chapter 11 bankruptcy protection in 2002, but at 193% debt-to-equity, cash flow is a closely watched metric. For fiscal 2012, the company reported free cash flow usage of $17.4 million versus positive free cash flow of $8.2 million in 2011. That's a concern.
What's also a concern is where Exide's growth will come from. Most pundits point to electric-vehicle growth as a source of new income, but it could take years for EVs to become popular enough to make a material impact on Exide's bottom line. The company's transportation segment, which accounts for nearly two-thirds of its revenue, grew by just 3% in 2012. Exide simply can't cut costs forever and will need to discover a way to grow its business; otherwise, it may have yet another meeting with that bankruptcy judge a few years from now.
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 Broadcom to My Watchlist.
- Add Joe's Jeans to My Watchlist.
- Add Exide Technologies to My Watchlist.
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