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 that 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.
Xerox (NYSE: XRX )
Yes, Xerox! Thinking of Xerox may bring up images of dinosaur-esque bulky office copiers, but the company has been in the midst of a multiyear transformation that's slowly moving it away from its reliance on printers and giving the company a more modern-world appeal.
In terms of those pesky printers, Xerox still sits on better footing than peers Lexmark International (NYSE: LXK ) and Hewlett-Packard (NYSE: HPQ ) . HP is too busy laying off 27,000 workers and restructuring its business to focus on outdueling its peers, while Lexmark is overly exposed to the consumer side of the printer business. Xerox is still going to find the going tough in the enterprise printer business, but economic clarity (and orders) are significantly stronger here than on the consumer side.
In addition to printing, Xerox is also becoming a leader in IT outsourcing and Medicaid processing management services. Accounting for half of its revenue, these newer services stand ready to lessen the severity of Xerox's cyclical printer business. In just the first six months since taking over California's Medicaid program in October 2011, Xerox handled more than 90 million claims totaling $7.5 billion. Considering the coming expansion of Medicaid-qualifying persons under the Affordable Care Act, Xerox looks like it'll be a busy bee for many years down the road.
At just six times forward earnings and with a very sustainable 2.5% yield, Xerox could be a nice late Christmas gift.
Workday (NYSE: WDAY )
On the flip side of the coin to Xerox, at just six times forward earnings, is human-resource-management enterprise cloud play Workday, which is valued at an astronomical 14 times book value and 38 times sales, and isn't slated to become profitable until at least 2014.
In Workday's defense, few of its peers have even half of the resource management capabilities, including payroll management, time tracking, and employee expense management, that Workday offers. Revenue has grown at a compounded rate of 314.6% since 2007, so it's no slouch in the expansion department.
Unfortunately, Workday's S-1 prospectus gave investors a clear indication that expenses and profitability aren't its primary concerns at the moment, choosing instead to focus on expanding its infrastructure. That effort, while a positive for the long term, is going to keep Workday heavily in the red over the next few years, I presume. If enterprise cloud businesses suffer any windfall from a decline in orders because of fiscal cliff uncertainty (which I see as a given), Workday's valuation simply won't stand up against any of its peers. As such, I'd be seriously considering establishing a short position in Workday at these levels.
Seagate Technology (NASDAQ: STX )
You know those hardware plays that can never get any respect no matter how cheap they trade? Well, Seagate is one of them!
Both Seagate and its primary rival Western Digital (NASDAQ: WDC ) rebounded nicely in 2012 as they put manufacturing problems related to flooding in Thailand and pricing issues in the rearview mirror. Lately, both companies have been languishing under the notion that going over the fiscal cliff will delay cloud rollouts for many midsize and large businesses. Since Seagate and Western Digital are double-dipping in the cloud revolution -- providing hard-disk drives for the PCs on one end and the big data centers on the other -- this could be a problem. Luckily, it doesn't seem to be more than a short-term one.
Over the long run, Seagate's hard-disk drives are a necessity item, as is the need for increased storage capacity. The only reason I prefer Seagate over Western Digital, although I like both, has to do with Seagate's preferential shareholder treatment that has the company paying out a 5% yield as well as boosting its share repurchase program by $2.5 billion to $3.5 billion in April. At less than six times forward earnings, I think Seagate deserves another look here.
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:
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