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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.
Intuitive Surgical (NASDAQ: ISRG )
I know I've highlighted Intuitive Surgical as a Watchlist worthy stock previously, but following yesterday's out-of-the-blue revenue warning I think investors would be foolish not to add the robotic surgical device maker to their Watchlist if they haven't done so already.
While I'm not advocating buying or selling Intuitive here, I think it's a groundbreaking stock for both optimists and pessimists to keep their eyes on.
For current and prospective shareholders in the company, Intuitive offers a revolutionary method of minimally invasive soft tissue surgery that's been shown in certain studies to be as effective as traditional laparoscopic surgery while also requiring, on average, less recovery time in the hospital. Because of its unique niche, Intuitive Surgical is able to command unheard of pricing power for its da Vinci surgical system, it's healthfully profitable, and it's based in the health-care space, which is only expected to see a boom in demand as the baby boomer population ages. In that respect, yesterday's drop could make for an incredible buying opportunity.
On the flipside, skeptics have a lot of reasons to be licking their chops, as I pointed out yesterday, primarily because of what I believe are the uncertainties associated with the Patient Protection and Affordable Care Act, a.k.a. Obamacare. Questions about Medicare reimbursement rates for hospitals, as well as whether or not uninsured individuals will understand how to get the subsidized health care that the PPACA will entitle them to, has hospitals skittish about spending big money on expensive machinery. Likewise, insurers aren't likely to approve more expensive robotic procedures until they're certain they get a new influx of members under the Obamacare Medicaid expansion.
What's more, what goes for Intuitive Surgical likely goes double for MAKO Surgical (UNKNOWN: MAKO.DL ) , a robotic surgical device maker for orthopedic knee and hip procedures. Because MAKO is currently unprofitable the boom and bust it could experience because of its unique niche versus the effects of Obamacare could really be a huge catalyst. Take clues from MAKO's management as another indicator of where Intuitive may head next and keep your eyes fixated on Intuitive's July 18 report.
Micron Technology (NASDAQ: MU )
If you're looking for an intriguing short-sale idea where you just might beat everyone else to the punch, consider digging a bit deeper into memory chip specialist Micron Technologies.
For Micron, things are going well. The company crushed Wall Street's expectations in the third quarter with its first profit in quite some time on the heels of a six percentage point boost in gross margin. Yet for memory companies, the time to run away is precisely when everything seems to be going their way.
One worrisome factor is the rate at which PC sales are shrinking. Micron derives a good chunk of its revenue from PC DRAM sales, and a continuation of worse-than-expected PC sales could cause a supply glut that would crush pricing. With much of the memory sector commodity-based to begin with, this could push Micron back into a contraction almost as quickly as it rebounded from one.
Comparatively speaking, for a cyclical company Micron isn't that cheap, either. Many commodity-based chip providers cautiously manage their balance sheet in anticipation of the next downturn. Micron, on the other hand, is carrying around a steep $1.07 billion in net debt as of the most recent quarter. This isn't to say Micron doesn't have sufficient funding, as it did end the quarter with $2.55 billion in cash. However, its debt levels don't inspire confidence that value investors can squeeze any more out of Micron at more than 13 times forward earnings.
InterContinentalExchange (NYSE: ICE )
Aside from being a menacingly long and type-challenging company name, IntercontinentalExchange, also known as ICE, could mark in intriguing buy candidate for investors if history continues to repeat itself.
Admittedly, one of the first humble lessons you're taught while investing is that you won't always be right. While history doesn't always repeat itself, it seems to more often than not. Where this comes in particularly handy is in regards to the ICE's futures market. Although volatility has been particularly low over the past two years, I don't think this is sustainable. Over the long run, when volatility returns to its historical norm, options volume would be expected to increase in a big way which will lead to bigger bottom line profits for ICE.
Another intriguing aspect of ICE is its pending merger with NYSE Euronext (UNKNOWN: NYX.DL ) . The merger with NYSE Euronext will broaden ICE's revenue breakdown dramatically from its current setup to the point that only 10% of its revenue will come from cash-based equities trading. Listing fees, market data, technology and futures/options trading will make up more than equities-trading, giving ICE the ability to resist economic downturns like never before.
I suspect ICE has an outside chance at growing by 10% or more annually over the coming three years, which would make its forward P/E of 18 appear quite cheap.
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 Intuitive Surgical to My Watchlist.
- Add Micron Technology to My Watchlist.
- Add IntercontinentalExchange to My Watchlist.
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