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. 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.
Skyworks Solutions (NASDAQ: SWKS )
I freely admit to pounding the table on Skyworks Solutions every couple of months. But, given its dominance in power-amplifying modules and RF components in mobile devices, I don't see how this company isn't a staple on everyone's watchlist.
Last month the RF supplier market (of which Skyworks is also a member) received quite the scare when Qualcomm (NASDAQ: QCOM ) unveiled its next-generation all-in-one RF360, which is capable of dealing with band fragmentation on the front-end and would make the current RF components mostly dead weight. This is terrible news for weaker-positioned RF suppliers like RF Micro Devices, which have been scrambling to produce 4G LTE-capable components. RF Micro, for instance, has been reducing its reliance on Nokia, but still counts quite a bit of revenue from 2G and 3G RF sales to the company.
Skyworks, on the other hand, has a tight-knit relationship with Apple and that isn't likely to change anytime soon. Skyworks' most recent quarter -- which saw it report revenue of $454 million, up 15% from the year-ago period, and EPS of $0.55 -- handily surpassed analysts' expectations. As icing on the cake, Skyworks ended the quarter with nearly $2 in cash and no debt. With ample R&D funds on hand and a bare-bones forward P/E of just 8, I feel Skyworks could be primed for a big move this year.
Endeavour Silver (NYSE: EXK )
Since making Endeavour a stock near a 52-week low worth buying in late January, it's done nothing but make me look foolish and head lower. Endeavour's problems are pretty simple to understand, with lower production at its newly purchased El Cubo mine and lower spot silver prices holding back its bottom-line profits. However, my opinion is that's about to change in a big way.
Just last week Endeavour delivered its ninth straight increase in proven, probable, indicated, and inferred resources on the heels of its eighth straight year of rising production. Silver equivalent proven and probable reserves now sit at 34.2 million ounces, up 67% from year-end 2011, while inferred resources rose by 92% to 87.1 million silver-equivalent ounces, or SEO. In January, it delivered 33% year-over-year SEO growth. With El Cubo's expansion well under way, it wouldn't be crazy to expect SEO production to rise by perhaps 1 million or more SEO this year.
On top of this, global weakness and demand from the tech sector should create enough of a buoy to put a floor under silver prices. Unless we see a near-halving in silver prices, Endeavour will remain incredibly profitable. The further it falls, the closer I get to initiating a real money position.
MGIC Investment (NYSE: MTG )
If you haven't been paying attention to the mortgage insurance sector, it's been a free-for-all rally across the board. Radian Group, MBIA, and MGIC have been soaring as the housing sector improves and investors make a long-term bet that underwriting qualities will improve enough to keep these insurers very profitable. That optimism, however, just doesn't translate over to MGIC, in my opinion.
I was stunned last week to learn, after reviewing MGIC's earnings results, that its stock was rallying. Needless to say you can imagine how shocked I am now just a few days later to see that it's up an additional 30% since that initial level on the expectation that it'll raise cash. A deeper dive into the figures, though, paints a much starker picture.
MGIC has now produced 10 consecutive quarterly losses and its risk-to-capital ratio has soared to 44.7:1 -- a completely unsustainable ratio that its own management has said is likely to head higher. As a reminder, countless failed mortgage insurers either stopped writing new policies or were forcibly shutdown for risk-to-capital ratios in the 42:1 to 58:1 range. If MGIC is going to raise cash, shareholders are going to feel the pain as it dilutes them to oblivion to get back under regulators' proposed risk-to-capital requirements of 25:1. In simple terms, if MGIC continues to move higher, I'd suggest digging deeper into its balance sheet and looking at potential ways to bet against its continued success.
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 Skyworks Solutions to My Watchlist.
- Add Endeavour Silver to My Watchlist.
- Add MGIC Investment to My Watchlist.
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