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 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.
In late July I selected Gogo, a WiFi-capable service that allows users to connect to the Internet while flying, as one of my three-stocks near 52-week lows worth buying. Since that selection, Gogo shares have more than doubled, and they shot significantly higher this week on news that the company had been given clearance for Ku-band satellite connectivity service on Boeing's 747-400 aircraft, which will allow Gogo to operate on international flights.
It's certainly been a meteoric rise for Gogo since the summer, but as a realist and skeptic I feel shares have now come too far, too fast.
As a pretty straight-line value investor, I see Gogo's rising expenses and ongoing losses as cause for concern, with the company now valued at nearly $2.9 billion. Gogo has burned through roughly $331 million in free cash over the past four years, and while it does offer a unique service, it's not without its fair share of competition. Global Eagle Entertainment (NASDAQ:ENT), for example, provides Southwest Airlines with gate-to-gate, satellite-based Internet connectivity that isn't reliant on cellular towers.
There's a lot of promise in flight-based Internet connectivity, and understandably we're still in the high-cost rollout phase, so some forgiveness should be given to these companies. However, following a more than 100% run higher, Gogo investors might be wise to expect some near-term downside.
Organovo Holdings (NASDAQ:ONVO)
If you're a more risk-seeking investor who is looking for the next potential boom or bust technology in the health care sector, perhaps it's time to add tissue engineering company Organovo Holdings to your watchlist.
On one hand we have a company that has the genuine potential to bioengineer human organs, create toxicology assay tests, and manufacture cancer tissue samples for pharmaceutical companies to use during their clinical-testing process to speed things up and make treatments more efficient. Traditional cancer therapies have helped stem progression moderately, but we're nowhere near a cure. Bioengineering failing or diseased organs and/or tissue samples could be the first step to truly beating some of the world's most serious diseases.
Furthermore, Organovo remains on track to bring its first liver tissue assay toxicology test next year, meaning revenue generation is right around the corner. Plus, its platform could lend itself to a number of possible partnerships moving forward.
On the other hand, we have a relatively unproven company that's burning cash and just filed to sell 4 million shares of common stock from time-to-time to raise more. These dilutive offerings are the bane of any shareholders' existence, but they're a common occurrence of a clinical-stage company. There are also questions as to whether or not Organovo's liver assay toxicology test will sell well right out of the gate. I've witnessed enough post-approval flops in the past couple of years to last me a lifetime!
It's difficult to tell which way this company could go at the moment because it's still early in its development process, and traders are clearly emotional and short-sighted. I would, however, recommending keeping a close eye on Organovo, as it could become the next big thing in bioengineering -- or a short-seller's dream if it flops!
American Capital Agency (NASDAQ:AGNC)
In addition to being a fairly staunch value investor, I particularly enjoy diving into a sector that people absolutely despise! At the moment there are few sectors more out of favor that mortgage REITs, which purchase asset-backed securities and make their profits off the difference between the rate at which they borrow and the rate at which they lend.
Over the previous couple of years, a low-interest-rate environment worked in favor of mREITs by allowing them to leverage themselves to the hilt and pay out monstrous double-digit yields. However, as lending rates rise and the prospect for the tapering of QE3 looms large, the net interest spread for mREITs has been shrinking, ultimately reducing profits and dividends, which are the primary allure of these investments.
While I wouldn't ignore the fact that higher lending rates will negatively impact the sector, I believe the concerns have been more than priced into this sector. American Capital Agency, for instance -- an agency-only mREIT that purchases asset-backed securities that are covered by the U.S. government in case of default -- has dealt with lower net interest spreads overall. It also struggles more than non-agency mREITs to improve its profitability during an economic recovery like we're in now. But it also lends to a safer investment platform over the long-term.
Another way I look at American Capital Agency is that its dividend, no matter how challenged, is going to pay out a higher yield than inflation. Looking at its agency-only peer Annaly Capital Management (NYSE:NLY), I'd note that even when the Fed Funds target rate was at 6% over the past decade, it still managed a yield of nearly 4%. With the assumption that you're reinvesting your dividends, that would mean an average yield of 8% (taking into account the good and bad years), meaning American Capital Agency could double your original capital on dividend income alone within a decade!
My suggestion would be to embrace this fear with open arms and dive deeper into the much-hated mortgage-REIT sector.
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:
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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