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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 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.
Oplink Communications (NASDAQ: OPLK )
Shares of optical component providers have been on fire in recent weeks -- save for Oplink Communications, which disappointed Wall Street two weeks ago with its third-quarter forecast. In that forecast Oplink guided to $42 million to $45 million in revenue in the third quarter versus Wall Street expectations that had called for $46 million. But rather than running in the other direction from Oplink, I'd consider this a genuinely strong buying opportunity.
One factor to consider is that spending from service providers is bound to trickle down to optical component makers over the next two or three years. AT&T is spending $14 billion on infrastructure upgrades over the next three years and Sprint Nextel is about to dramatically expand its 4G LTE coverage, which should translate into big product orders from fiber-optic component makers like Oplink. Optical component supplier JDS Uniphase is already seeing some of these benefits, with its operating margin improving from 9.2% to 11.3% in the second quarter.
Another factor to consider that helped JDS Uniphase and should help Oplink is that the uncertainty associated with the fiscal cliff and the U.S. debt ceiling is abating, which is giving service providers better visibility and should allow demand to improve.
Finally, Oplink is a cash cow. The company ended the quarter with $166.7 million in cash ($8.65 per share) and has been actively deploying its cash to repurchase shares. With so much cash on hand and the company consistently profitable, this looks like a long-term winner or even a buyout candidate.
Acura Pharmaceuticals (NASDAQ: ACUR )
Now that things have calmed down a bit for Acura Pharmaceuticals, it's time to give this abuse-resistant medication producer a serious second look.
The company has two primary products, Oxecta and Nexafed. Oxecta was approved in 2011 as an opiate-based painkiller with the company's proprietary Aversion technology designed to keep people from crushing the drug and either snorting it or injecting it via intravenous injection. It licenses Oxecta out to Pfizer and receives royalties ranging from 5% to 25% on the drug. However, as Pfizer notes, the drug is still prone to oral abuse, and thus its potential is limited.
Nexafed, however, looks like it could be a whole different animal for Acura. Nexafed is a new version of the decongestant pseudoephedrine that utilizes Acura's technology and disallows users who wish to extract the pseudoephedrine to turn it into crystal meth from doing so. As my Fool colleague David Williamson notes, the key growth driver for Acura moving forward is the fact that it owns all rights to Nexafed. With relatively low research and development costs, Nexafed should be enough to move Acura into the black without the need for Oxecta royalties. This is a biotech worth keeping a close eye on.
Cameco (NYSE: CCJ )
To say that the bottom-line results for uranium producers have been affected in a negative way because of rising nuclear energy costs and the tragic Japanese earthquake of 2011 would be an understatement. Cameco, one of the world's largest uranium producers, recently delivered its full-year results that highlighted a 12% decline in adjusted earnings on a 3% fall in revenue. Uranium prices fell 4% as domestic nuclear projects continue to be delayed or canceled altogether.
However, you'll find very few companies as transparent as Cameco when it comes to laying out its projections for up to five years down the road. Production in 2013 is expected to expand to 23.2 million pounds as its Cigar Lake mine finally comes online. By 2016, production should be up to more than 31 million pounds of uranium, with Cigar Lake producing close to 8 million pounds alone.
The price of uranium should also stabilize and head higher as the Obama administration pushes energy producers for cleaner fuels and Cameco looks overseas for opportunities. Nuclear energy has received a bad rap lately and could be turned to via energy subsidies as a way to make America energy-independent. In China, nuclear energy looks poised to become a big energy driver along with coal over the next decade. Cameco may be down now, but it won't be down for long.
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 Oplink Communications to My Watchlist.
- Add Acura Pharmaceuticals to My Watchlist.
- Add Cameco to My Watchlist.
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