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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.
Arris Group (NASDAQ: ARRS )
It may appear that Arris Group has hit a stumbling block over the past couple of months after a nice market-beating run. In its preliminary first-quarter results released in April, the company noted a $13 million reduction to revenue due to its purchase of Motorola Home, but managed to slightly top EPS estimates. Arris, a supplier of video and broadband technology to cable companies, has certainly failed to live up to shareholder expectations since the recession; however, that may be about to change.
Arris' fortunes are often very tied to the success of the fiber-optic sector. An uptick in fiber orders normally signals a new cycle of infrastructure buildout for the nation's largest telecom and cable service providers. JDS Uniphase, for example, grew its optical communications business segment by 7% over the previous year in a challenging third quarter. While it's a bit further down the food chain, Arris certainly would be expected to see a big boost in profits perhaps beginning as early as next year.
For Arris, the company's order backlog was up 27% to $282.1 million over the previous year with the company generating $50 million in cash from operations. Not surprisingly, estimates for next year have vaulted higher, with the company valued at less than nine times forward earnings. If I were you, I'd keep a close eye on Arris for any weakness as a potential buying opportunity.
Fluor (NYSE: FLR )
Growth at Fluor may have slowed to a crawl compared to previous years, but this is a company that should be looked at as practically a necessity stock.
Fluor operates as a consultant and building services contractor in five business segments, but investors are having a hard time hurdling the fact that the U.S. government is one of those divisions. As you might recall, the sequester is removing $85 billion from the federal budget, which could certainly hurt future orders for Fluor's services from the Department of Energy or Defense. Then again, Fluor's tie-in with the private energy and independent oil and gas sector make it a very attractive bet over the long run.
President Obama has made it very clear that he'd like to see America become more energy independent. In order to accomplish this goal, it means the construction of new drilling rigs as well as more energy-efficient power plants, and certainly more pipeline and storage tanks capable of holding an increasing number of natural gas and oil finds. Fluor's bread-and-butter business is these energy and oil-and-gas projects. In just the last quarter alone, Fluor received $6.5 billion in awards -- with $3.1 billion coming from the oil and gas sector -- and total backlog rose 11% to $18.6 billion.
At roughly 13 times forward earnings, I feel this is a fair price for a name you can trust throughout the remainder of the decade, if not longer.
Jazz Pharmaceuticals (NASDAQ: JAZZ )
The month of May has been pretty turbulent and certainly sleep-depriving for shareholders in Jazz Pharmaceuticals. The biopharmaceutical company, which derives 60% of its revenue from narcolepsy treatment Xyrem, reported a near doubling in revenue and upped its EPS forecast well beyond its own previous guidance for the full year, but also commented that the Food and Drug Administration may approve a generic version of Xyrem currently being developed by rival Roxane Labs.
Investors, though, should certainly keep a level head because any weakness here looks like a viable buying opportunity in a still rapidly growing biopharma company. To begin with, Xyrem sales have been on fire, growing 60% in the past quarter. That wouldn't be too meaningful were it not for the fact that Teva Pharmaceuticals' (NYSE: TEVA ) Provigil's patent expired and sales dipped 92% year over year in its latest quarter. Furthermore, Nuvigil, the next-generation Provigil, also saw sales fall by 1%. To me this signals that Xyrem is cleaning up by taking market share in a relatively underserved narcolepsy treatment market.
The other factor that makes Jazz an intriguing candidate is that the likelihood of the FDA allowing Roxane to bring a generic version of Xyrem to market appears pretty slim. It's more likely that Jazz would settle with Roxane long before that happened in order to secure the exclusivity of its lead drug. Jazz's decision to boost its EPS forecast this year only reinforces management's confidence in the company continuing to exceed expectations.
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 Arris Group to My Watchlist.
- Add Fluor to My Watchlist.
- Add Jazz Pharmaceuticals to My Watchlist.
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