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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 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.
Sarepta Therapeutics (NASDAQ: SRPT )
Following yesterday's 64% decimation of shares, I'm not sure how any company could top the list of must-watch names other than Sarepta Therapeutics.
Clinical-stage Sarepta, whose most advanced drug is eteplirsen, a drug designed to treat a rare disease known as Duchenne muscular dystrophy, was walloped for nearly two-thirds of its value yesterday following word from the Food and Drug Administration that it would consider a new drug application filing for eteplirsen to be premature.
If you recall, eteplirsen delivered stunningly good results in a mid-stage trial consisting of just 12 patients, whereby it demonstrated not only disease control but disease regression with an improved six-minute walking-distance test. Over a 96-week follow-up, eteplirsen continued to demonstrate strong results.
However, the FDA sees things a bit differently following the monumental failure of GlaxoSmithKline and Prosensa's (UNKNOWN: RNA.DL ) drisapersen, which works along the same pathway as eteplirsen. Prosensa and Glaxo's drisapersen failed to provide any clinical benefit over the control arm in a large late-stage study, which has the FDA skeptical of accepting dystrophin as a biomarker that can be used to approve eteplirsen. Instead, Sarepta is going to need to sit down with the FDA and discuss what will likely be a lengthy and costly confirmatory study for eteplirsen.
There are certainly two very wild outcomes here. The first possibility could confirm eteplirsen's positive effects on DMD patients and easily send the stock up by double or triple where it's currently at since it would control 13% of the DMD market share if approved by the FDA. On the downside, if eteplirsen disappoints in a larger-scale study, the entire reliability of exon-skipping drugs may be called into question, which basically includes Sarepta's entire pipeline. If that were to happen, Sarepta could have further to fall, even with its $281.4 million in cash and cash equivalents on hand.
Sarepta remains a must-watch stock simply because we're almost assured of a big move one way or another. Deciphering the direction from here is the toughest part that will only become clearer after we get that confirmation study data.
Monsanto (NYSE: MON )
Warning! If you dislike controversial stocks or are a socially conscious investor, skip to the next company below.
I fully understand the opposition to Monsanto and consumers' need to understand what's going into their food and where their food is coming from. New country-of-origin labels in the meat processing industry, for example, are improving transparency on that front but also boosting expenses for meat processors like Tyson Foods (NYSE: TSN ) , which have been forced to pass along higher prices to its customers to cover those relabeling costs. The upside of meat processors like Tyson is that they have fairly solid pricing power, but any significant price hikes could simply be met with consumers buying less meat.
Monsanto has been locked in a different, yet similar, battle against consumers who oppose the company's use of genetically modified seeds to help farmers improve crop yield. There was concern that Washington state would be the first in the U.S. to vote for more stringent GMO labeling (more than what current federal law requires), but that referendum was struck down just last week, clearing the way for another Monsanto victory march.
While I'm not oblivious to the legal battles that Monsanto will continue to fight moving forward, the need to improve crop yields around the globe with a growing population is likely to supersede any domestic legal battles that Monsanto is going to fight over the interim. To me, this signals that Monsanto's 5% to 7% long-term growth rate is quite sustainable, as is the company's 1.6% dividend yield. If you can look past the legal white noise, you're probably going to find a company with a solid long-term outlook at an attractive valuation.
China Sunergy (NASDAQOTH: CSUNY )
As we do weekly, I'll end by offering up a "sacrifice" to short sellers in the form of a China-based solar company, China Sunergy.
Let's start with the basics here: Things are improving and so is the share price. In China Sunergy's recently reported third quarter, it delivered a much narrower loss of just $0.11 per share compared to a loss of $2.26 per share in the year-ago period as its solar goods costs dropped 41%. In addition, the Chinese government has made no qualms about supporting China's solar industry by pegging solar production orders at 35 GW through 2015.
But there are a lot of other facts and figures we have to keep in perspective here. First would be that China Sunergy saw revenue fall 33% to $71.8 million in the same quarter, sending the company to its 10th straight quarterly loss. China Sunergy is attempting to lower its cash burn by ramping down production, but even with that being done, it's still unable to turn a profit.
Another factor at work here is that newer anti-dumping tariffs are in place in select overseas markets. These tariffs make it difficult for the normally cheaper Chinese solar companies to compete since their efficiency often lags their international counterparts. Therefore, outside of China, a company like China Sunergy is struggling to even make a footprint.
With more than $530 million in net debt and coming up on three straight years of losses, I'm beginning to think it'd take nothing short of a miracle to get both China Sunergy's top and bottom lines moving ahead in unison, and would consider it a relatively attractive short-sale candidate at these levels.
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:
- Add Sarepta Therapeutics to My Watchlist.
- Add Monsanto to My Watchlist.
- Add China Sunergy to My Watchlist.
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