3 Stocks to Get on Your Watchlist

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 with 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, these aren't concrete buy or sell recommendations, and I don't guarantee I'll take action on the companies being discussed. But I promise 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.

Xerox (NYSE: XRX  )
Even though I suggested adding Xerox to your Watchlist back in early January, I believe the overreaction to its fourth-quarter earnings-per-share projections is reason enough to bring its name up once again.

For the third quarter, Xerox reported a 3% increase in revenue to $2.94 billion, with information technology services revenue now accounting for 56% of total revenue and successfully putting to rest the days of Xerox being just a printing company. Adjusted EPS rose 4% from the previous year as cost-cutting measures aided Xerox's bottom line, with the company topping expectations by $0.01. Where the train went off the tracks was when Xerox noted that a fourth-quarter restructuring would reduce EPS by $0.04 and cause the company to report $0.28 to $0.30 in EPS, below the $0.33 consensus.

But I'm here to tell you that Xerox is as strong as ever and this drop looks like the perfect opportunity to jump in for those who originally missed the lows.

Xerox should become one of the prime beneficiaries of Obamacare. I know what you're thinking: "The federal health exchanges have been a disaster. How can Xerox possibly benefit?" The reasons I see Xerox benefiting are threefold. First, it's the primary processor of Medicaid claims in California. As California is among the two dozen or so states choosing to expand Medicaid, Xerox should find its processing volume only increasing from here.

Second, Xerox was the architect behind Nevada's state-run exchange, which, for the most part, has been functioning far better than the federally run HealthCare.gov. Xerox could set a precedent with its state-run architecture that may allow it to land future contracts if its software and launch keep going as planned.

Finally, Xerox subsidiary Buck Consultants is the operator of RightOpt, a privatized insurance platform that helps displaced retirees and employees who are being shuffled from corporate health plans. As more and more enterprises look to save money by pushing their retirees and employees to private exchanges, Xerox should see benefits there as well.

All told, at less than nine time forward earnings and a yield of 2.4% Xerox is certainly worth another look for investors seeking a good value.

Sinopec (NYSE: SNP  )
I fully realize there might not be a better way to tick off socially conscious U.S. investors than to suggest buying into an oil company that happens to be one of China's largest producers and refiners, but that's precisely what I'm doing here.

I can obviously understand the skepticism surrounding Sinopec as there have been a number of reasons to be distrustful of Chinese securities in recent quarters. China's GDP has been on the decline for much of the past two years and at 7.7% would be about 23% below its 30-year historical average of 10%. With lower GDP comes the needs for less refined petroleum, harming both sides of Sinopec's business.

In addition, earnings results since 2010 from Chinese companies have seemingly come with a bit of an asterisk because of the roughly one dozen Chinese small caps whose book-cooking spoiled it for everyone else. Therefore, you can expect China-based companies to trade at a bit of a risk discount compared to domestic stocks.

However, I feel the discount being placed on Sinopec could be unfair given its global growth potential and better transparency than most China-based companies.

In its third-quarter results Sinopec reported 26% revenue growth to $12.3 billion and delivered a net profit of $3.6 billion which was up 63% over the previous year. More than just a China-based story, Sinopec is diving headfirst into developing its Canadian shale assets by offering to sell half its stake in order t to share the development costs and get production up twice as fast. With rapid emerging market growth potential on its plate and a forward P/E of just seven I feel it's time to take a deeper look at Sinopec.

Insulet (NASDAQ: PODD  )
As always, I've got something for you short-sellers that are looking for new ideas. This week I plan to take a closer look at Insulet, a manufacturer of insulin-infusion pumps for those who suffer from diabetes.

We can easily start with what's not wrong with Insulet. It's in a field with a big potential for growth (diabetes) since a good chunk of the 25.3 million people in this country with diabetes go undiagnosed. The implementation of Obamacare should improve preventive care in this country which, in turn, could help boost sales of the company's OmniPod System. Insulet shareholders have also been privy to consistent sales growth of approximately 20%, so it's not as if product sales aren't improving.

"What's not to like then?" you might ask. For me it starts with Insulet's astronomical valuation of $2.1 billion relative to forecasts of just $300 million in sales next year and a minimal full-year profit expectation of $0.06. Until now Insulet has not turned a profit, so being in the black is a step in the right direction, but I'm not certain a forward P/E of 650 is warranted. Even if you give Insulet the benefit of the doubt and look at its 2015 projections the company is still valued at 95 times EPS for a PEG ratio of nearly five!

Another unaccounted for factor is increasing competition in the diabetic pump space. Just last month Medtronic (NYSE: MDT  ) received approval for its MiniMed Artificial Pancreas 530G next-generation insulin pump which knows to shut itself off when a patients' blood sugar level gets too low. Keep in mind that Medtronic has far deeper pockets than Insulet and it should go a long way to invigorating diabetes-related device sales for the company, with the device wearability time also improving from three days to six.

There's also DexCom (NASDAQ: DXCM  ) , another company whose valuation has spooked me in the past, which saw product revenue grow by 65% in the second-quarter  thanks to improved sales of its G4 Platinum pump which has a smaller sensor with improved accuracy relative to the Seven Plus, its previous-generation insulin pump.

This seems like quite the premium valuation on Insulet given this rapidly growing competition which is why I would suggest looking at the company as a potential short-sale candidate.

Foolish roundup
Is my bullishness or bearishness misplaced? Share your thoughts in the comment 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:

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 31, 2013, at 12:07 PM, vikramghokale wrote:

    It's clear that you don't know the companies you are talking about. Dexcom makes a glucose sensor not a pump.

    Insulet has a far superior product compared to Medtronic. Their patent on a wireless pump (Medtronic still uses tubes) will keep them ahead of the game. With more diabetes awareness Insulet will gain more market share and pricing power.

  • Report this Comment On November 04, 2013, at 10:28 AM, bkbsells wrote:

    I've been a diabetic for 43 years and have been treated with numerous different products over the years. Here are a few of the game changing products that made a major difference in the treatment of Type I Diabetes over the years....

    1. blood sugar testing (1981)

    2. human insulin Kleiner Perkins funded (early 80's?)

    3. compact tubed insulin pumps w/ Minimed/ Medtronic & Disetronic (early 90's thru 2013)

    Last month, I finally switched off the Medtronic pump therapy and moved to the Insulet Podd. It is remarkable. Far superior to the Medtronic system. It is the biggest advancement in diabetic therapy for over 20 years. I had waiting for something new like this for many years.

    I've worn the latest Medtronic setup that they claim represents the first stage for an artificial pancreas. It is no where close to that and makes a false hope to diabetics. They've had this almost identical setup for 5-6 years and now did some simple programming to stop insulin when sugar is low.

    PODD has a partnership with Dexcon on the monitoring side. An integrated pump/sensor with one body site is the key and that will be close to an artificial pancreas. Hopefully they can figure this out next. Medtronic has been trying unsuccessfully for years and now they have a dated pump system. In the meantime the PODD system requires very little blood and is painless.

    It should also be noted that the Medronic and Dexcon devices don't read blood glucose levels but sugar in the skin fluids. This can pickup trends but is late for warning of true glucose levels.

    I own PODD. Considering their product is revolutionary and patented, I won't be surprised if a large drug company bought them and possibly Dexcon. I'm simply going to hold. They are scrambling to fill orders. My doctors office has 3,000 to 4,000 patients. I'm PODD user number 12.

  • Report this Comment On November 07, 2013, at 7:10 PM, bobb14 wrote:

    I was using the pod for one year and just stopped about 2 months age. There customer service is the worst ever with waiting time to speak to them is a average of 30 to 40 minutes..As far as the pods, i had so many that were defected at a cost of 30.00 each that i switched to V-go and fine them much better and at half the price.....

  • Report this Comment On December 19, 2013, at 11:23 AM, LIG wrote:

    So did anyone short PODD? My daughter has been Type 1 for one year and has been on the omnipod for 9 months. Even with the failed pods, I cannot see her willing to go to a tubed pump where she has to have the whole pump and controller (PDM) on her body at all times. The V-go is for type 2 adults and has no where near the tiny increments we need for basal, corections and food bolus for a skinny 7 year old. She uses 3 units/day basal and 35 carbs per unut for food. If she used the v-go her minimum basal would have to be 20 units/day and she would have to eat a minimum and not more than 70 carbs/ eating which is not possible. My guess is that many type 2 diabetics would need less than those minimums as well because the are able to produce some insulin. We pay $8.00 out of pocket per pod every 3 days. Insurance pays about $24. They have to be making a profit on those little things, but just need to ramp up costomers, which I think they are doing.

    On the business side I know less about Podd and think the article was accurate about its growth and earnings. I purchased PODD in my daughters ESA partly because it may give her pride in owning a piece of her diabetes management and partly because we are sending a lot of money their way.

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