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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 see 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.
MannKind (Nasdaq: MNKD )
For you biotech speculators looking for a company with all-or-nothing potential, let me introduce you to MannKind.
MannKind is currently a clinical-stage biotechnology company whose leading drug candidate is Afrezza, an inhalable insulin aimed at treating type 1 and type 2 diabetes. Afrezza has been previously rejected by the FDA, although the company is in the process of finishing its patient screenings for both diabetes indications in the hope of filing a new drug application with the FDA by the first quarter of 2013. There's a lot of promise with Afrezza if it's approved, as it seems only logical that patients would opt to inhale insulin rather than inject themselves. But there are also multiple reasons to be concerned.
To begin with, every inhalable insulin that's gone before the FDA previously has failed miserably, and people seem very content injecting themselves at the moment with Lantus, Sanofi's (NYSE: SNY ) market-share leading insulin drug. Pricing could also be a concern. If it's approved, MannKind's ability to reasonably price its product versus its investment in Afrezza could be a problem. Finally, MannKind recently filed a registration that'd allow it to sell up to $500 million in stock, debt, and warrants, which could mean massive dilution for current shareholders. It's one worth watching for sure!
BioFuel Energy (Nasdaq: BIOF )
I personally thought ethanol was yesterday's news, but that's definitely not what investing genius David Einhorn is thinking. The usually pessimistic investor's firm, Greenlight Capital, actually bumped up its stake in BioFuel Energy to 36.2% in early September, lighting a combustible fire under the stock that caused it to explode from $3 to nearly $11 per share, all in less than two weeks. Usually I don't disagree with David Einhorn's assessments, but this is a rare case where I definitely don't see eye to eye.
Recently, BioFuel idled production at its Minnesota ethanol facility because of excessively high ethanol supplies. The reason for the excess inventory has to do with record-high corn prices caused by the U.S. drought. As long as corn prices remain high, BioFuel's margins will be squeezed and ethanol demand with remain tepid at best.
There's also that little tidbit about profitability, which has eluded BioFuel since it went public. Tracing back its annual results through 2007, the company has only recently become cash flow positive (and that's marginal at best) despite soaring revenue up until recently. I feel that if BioFuel couldn't make money when things were good, how's it expected to make money now?
Still, as long as David Einhorn has his eye on this stock, so will I!
Level 3 Communications (Nasdaq: LVLT )
My heart be still! If you check Wall Street's fiscal 2013 forecast, you'd see that analysts are actually expecting Level 3 to report a profit! Someone slap or pinch me, because this can't be possible.
According to data available on Morningstar, Level 3 hasn't even come close to turning a profit in the past 10 years, and a has a cumulative net cash outflow of $2.3 billion over that period. Level 3 merged with Global Crossing, another equally bad company that could never turn a profit, last year to form what I refer to as the worst company in the history of the networking sector -- and that's saying something because there's always WorldCom or Nortel to fall back on there!
The knock I have against Level 3 continues to be why I'd buy it when I could buy AT&T (NYSE: T ) , which has a rich history of profitability and isn't in danger of missing its debt obligations, despite having $64.5 billion in debt on its balance sheet. Level 3 "only" has $8.5 billion in debt, but it can't produce positive cash flow, which is a big problem. Furthermore, the market for networking products is fierce and most large companies in the sector will pay a dividend. Level 3 offers none of these perks.
There remain few, if any, redeeming qualities for Level 3, but I, nonetheless, remain on the edge of my seat to see if it can actually turn a profit (or if pigs will fly first).
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 to keep up on the latest news with each company:
- Add MannKind to My Watchlist.
- Add BioFuel Energy to My Watchlist.
- Add Level 3 Communications to My Watchlist.
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