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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. 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.
AstraZeneca (NYSE: AZN )
Normally I tend to avoid many big pharmaceutical names because of the fear that generic competition from patent expirations will decimate the pipeline. AstraZeneca has definitely had its fair share of concerns in recent years with the loss of a major revenue producer in every year since 2010. It lost breast cancer drug Arimidex in 2010, schizophrenia drug Seroquel in 2011, asthma medication Symbicort in 2012, will lose non-small-cell lung cancer drug Iressa this year, and is expected to lose heartburn blockbuster Nexium in 2014.
Despite these concerns, AstraZeneca's pipeline is also beginning to show signs of hope. Specifically, the U.S. approval of Johnson & Johnson's Invokana to treat type 2 diabetes last week gives me every hope and indication that the next time the Food and Drug Administration reviews AstraZeneca and Bristol-Myers Squibb's (NYSE: BMY ) Forxiga, it will be approved.
Forxiga is an SGLT2 inhibitor that works in the kidneys instead of the pancreas and liver, and allows the body to rid itself of excess glucose through the urine while also providing a nice side effect of weight loss in most cases. Concerns about elevated risks for bladder and breast cancer originally kept AstraZeneca and Bristol's drug from being approved, but as part of that same SGLT2 class, Invokana essentially paved that road for Forxiga.
With one of the most sought-after dividends in all of big pharma at nearly 8% and a blockbuster diabetes drug that's already approved in Europe, AstraZeneca deserves to be back on your radar.
Tesla Motors (NASDAQ: TSLA )
Earlier this week electric vehicle producer Tesla Motors proved me wrong by announcing that it had produced 4,750 Model S sedans during the quarter -- considerably higher than the 4,500 it had originally projected -- and that it would be profitable on a GAAP and non-GAAP basis. Beyond that, the details are up to the most vivid imagination, because Tesla wouldn't get any more specific than that, or reveal how it was able to turn a profit in the first place.
As for me, I remain as skeptical as ever about a company that's being rewarded for meeting its own expectations for possibly the first time ever. Just recently Tesla announced that it'd be delaying the launch of its Model X SUV by a full year, from late 2013 to late 2014. That isn't a production flub; that's just typical Tesla!
I'd also caution investors to remember that Tesla owes $465 million in loans from the Advanced Technology Vehicle Manufacturing loan program, which requires it to pay back $12 million in just interest each quarter. Ultimately, this loan will have to be paid off by the end of the decade. In order for that to happen, Tesla will have to do something it hasn't done since it became a public company: be consistent and deliver on what it promises.
I'm simply not convinced that Tesla's move higher is warranted given the inconsistencies in the underlying business, the lack of EV infrastructure, and its outstanding loan.
Chimera Investment (NYSE: CIM )
Not that long ago I featured Annaly Capital Management (NYSE: NLY ) as a mortgage REIT worth watching because of the Federal Reserve's language regarding its bond-buying program. Although Fed Chairman Ben Bernanke has made no qualms about continuing to purchase mortgage-backed securities, or MBS's, through 2013, it may lessen its bond purchases shortly thereafter.
One of the biggest detriments to mREITs like Annaly is that with the government snatching up outstanding MBS's, the price paid and the net interest margin these mREITs received was under constant pressure. Without the Fed constantly buying MBS's, a better supply will yield quality instead of quantity in mREITs portfolios.
Where Annaly and Chimera Investment differ is in which MBS's they prefer to purchase. Annaly purchases only agency-backed securities (those guaranteed by the full faith of the government), while Chimera purchases a mixture of agency and non-agency loans. The upside for Annaly is that it can pile on the leverage without too much fear of reciprocity since its loans are backed by the government. On the flip side, its net interest margin is going to be much lower than that of Chimera, which will net much higher yields from its non-agency loans. Conversely, if things go bad, Chimera is on the line for its losses.
Following the roughly one-year period it took Chimera to get its reporting in order, we learned from the deep dive that fellow Fool John Maxfield took into Chimera last month that its problems aren't operational, but based on accounting competency. While unwelcome, these problems are easy to fix, and they don't jeopardize its business model. With lending-rate visibility clear as a whistle through 2015, Chimera's yield and bottom line returns should improve and the stock could still be in for an amazing rally.
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 AstraZeneca to My Watchlist.
- Add Tesla Motors to My Watchlist.
- Add Chimera Investment to My Watchlist.
Is this double-digit yield sustainable?
It's hard to miss the massive double-digit dividend on Chimera Investment, but when investors start to dig in, it's also hard to miss the fact that it's been more than a year since the company has filed audited financials with the SEC. Should you follow the dividend's siren song into Chimera's stock? To help you figure out whether the stock is a buy right now, The Motley Fool has just released a new premium research report on Chimera. Click here now to claim your copy of this must-have investor's resource.