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.
J.C. Penney (NYSE:JCP)
J.C. Penney certainly hasn't been a dull company to follow over the past year and change, as former Apple stores vice president Ron Johnson has tried practically everything under the sun to turn around Penney's ailing retail business. Ron Johnson's multipart plan involved removing sales from Penney's grand scheme, introducing the store-within-a-store concept with desirable brand-name products, and focusing its efforts on mobile.
The experiment has been a monumental failure thus far, with Johnson caving in on reintroducing sales and online sales improving only modestly. What really stands to be a thorn in Penney's side is the upcoming litigation between it and Macy's (NYSE:M) over the rights to sell Martha Stewart Living Omnimedia products in its stores.
Penney's has taken a 16.6% stake in Martha Stewart Living and plans to introduce mini-shops -- one featuring Martha Stewart's products -- within its stores. Needless to say, despite her troubled past, Martha Stewart's products are still a force to be reckoned with in regard to driving traffic into retail stores. Macy's, however, contends that it entered into an agreement with Martha Stewart Living Omnimedia in 2007, long before Penney's entered into its pact with Martha Stewart Living, which should preclude Penney's from selling these products until 2018. The case, which is readying to get under way in New York, won't doom either party, but Penney's clearly has more on the line to lose if the judge sides with Macy's. Keep a close eye on this case, as Martha Stewart could be the biggest traffic driver Penney's has in its deck.
Biotech shareholders occasionally live and die by the sword -- Affymax shareholders know that all too well after their stock was eviscerated on Monday following word that it and licensing partner Takeda Pharmaceuticals were, in cooperation with the Food and Drug Administration, recalling all lots of injectable Omontys. According to the press release, of the 25,000-plus patients having taken the once-a-month injectable anemia drug, about 0.2% had a hypersensitivity reaction of which one-third were considered serious. In total, 0.02% of cumulative patient injections resulted in death.
While I'd like to say an 85% haircut is grounds for a rebound, I think the company could unfortunately fall another 50% to 75% from its current levels and would consider betting against it on any rally in the interim.
The reasons are simple. First, recalls that result in death rarely are easy fixes. The FDA isn't going to allow Affymax to just simply slap a black-box label on there and "ta-da," problem solved. We're probably looking at multiple new safety aspects being looked at and potentially one or more safety trials being run.
Second, Affymax's entire pipeline is built around Omontys. Its only other trials are a late-stage dosing trial with Omontys and a mid-stage overseas study utilizing Omontys to treat patients with anemia caused by pure red cell aplasia. Without Omontys, Affymax has enough cash to perhaps survive another two years if it announces layoffs and cuts back on R&D.
Finally, even if -- and that's a big if -- Omontys makes it back to market, Amgen (NASDAQ:AMGN) will have further solidified its market share lead in anemia treatments with Epogen. Amgen's Epogen has basically controlled the market for two decades, and multiyear agreements with the nation's top dialysis centers ensure that Affymax will have a rough go of things if it manages to revive Omontys.
Annaly Capital Management (NYSE:NLY)
Mortgage real estate investment trusts continue to sport impressive dividend yields, but they've been basically taken to the woodshed over the past few months as the Fed's mortgage-bond buying program has lessened the number of available MBS's for purchase and significantly reduced the net interest margin that Annaly receives. However, that pattern looks like it could be about to change, which would be great news for Annaly.
Last week the Federal Reserve noted in its meeting minutes that it may not be able to continue purchasing $85 billion worth of Treasuries and mortgage bonds prior to unemployment levels hitting 6.5% as it originally thought. While this is unlikely to have a big immediate impact on interest rates, as I'd suspect the Fed will merely cut back on its purchases, not stop them altogether, it'll definitely open up the pool of MBS's to Annaly's advantage and should quickly boost net interest margins while allowing it to add leverage with minimal risk.
Please keep in mind that eventually lending rates will rise and, as they do, Annaly's net interest margin will be pinched. Until that time, which the Fed has commonly said won't be until at least 2015, you can probably expect solid margins and a relatively high yield.
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:
Fool contributor Sean Williams has no material interest in any 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 Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.