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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 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.
AbbVie (NYSE: ABBV )
You know those fears about AbbVie struggling once Humira's patents begin expiring in late 2016? Let's go ahead and possibly get ready to toss them out the window because AbbVie's direct-acting antiviral combo drug to treat hepatitis C is starting to look like every bit the monster drug that it's been labeled as.
Humira, the world's best-selling drug with an estimated $10.1 billion in sales this year alone, accounted for more than half of Humira's first-half revenue and 62.5% of its international revenue. With the prospect of generic competition hitting the market in just a few years, investors have been unwilling to allow AbbVie much of a pricing premium.
That could change, though, with AbbVie reporting the results on its second of six late-stage trials involving its DAA combo drug yesterday morning. The results demonstrated a sustained virologic response after 12 weeks in 96% of genotype 1 patients previously treated with pegylated interferon and a ribavirin. What's truly impressive is that roughly half the treated population was considered null responders under the previous treatment regimen, and that this treatment is administered without the need for interferon, which can cause flu-like symptoms in patients.
Yesterday, we witnessed Enanta Pharmaceuticals (NASDAQ: ENTA ) rocket higher on the news as well since it helped develop one of the three compounds (ABT-450) used in the DAA combo, but AbbVie will be the biggest winner over the long run, without question.
The biggest question mark is simply how to get the more than 2 million people infected with hepatitis C who don't know they have the disease, according to statistics from the Centers for Disease Control and Prevention, treated. If that is figured out, AbbVie, which is gearing its drug to be a blockbuster treatment in the most common form of the disease (genotype 1) could have a drug with sales potential of greater than $5 billion.
Akamai Technologies (NASDAQ: AKAM )
It's been a rough fall for content delivery and cloud infrastructure services provider Akamai, which was hammered in October after providing fourth-quarter guidance that wasn't quite up to par. As my Foolish colleague Steve Symington noted, Akamai guided to a range of $412 million to $430 million in fourth-quarter revenue, which is lower than previous expectations that called for nearly $433 million in revenue. The shortfall was blamed on price negotiations with one of its most prominent media customers, and I would suspect was exacerbated by weak government spending.
Despite the lukewarm quarter, I believe Akamai could be an attractive long-term investment as the need for content aggregation and network infrastructure is only going to increase as big data centers grow in prominence and cloud spending intensifies. I suspect the recent slowdown in government spending will soon be negated by boosted capital expenditures from Akamai's enterprise customers, which should keep its double-digit growth rate on track for years to come.
In addition, Akamai is partnering with some of the biggest names in IT infrastructure. In October Akamai struck a deal with Cisco Systems (NASDAQ: CSCO ) to provide its Unified Performance technology in Cisco's ISR-AX series of routers. The deal will act as the perfect win-win for Akamai and Cisco by allowing Cisco to take advantage of Akamai's superior content delivery and routing technology and by placing Akamai's next-generation technology in Cisco's networks, arguably the world's leading name in networking systems.
At just 21 times forward earnings and with $566 million in cash with no debt, I feel Akamai is a stealthy growth pick for the remainder of the decade.
Twitter (NYSE: TWTR )
As always I have a little "something, something" for my faithful short sellers out there, and this week it's social media giant Twitter.
Since going public five weeks ago, Twitter has been able to surge well past its first-day trading pop and eclipsed $50 on investor hope that its social media pull will allow it to command impressive pricing power with advertisers. There's certainly some merit to that because Facebook (NASDAQ: FB ) has been able to shift its entire strategy toward a mobile-oriented platform in just a matter of one year. As of Facebook's latest quarter, mobile accounted for roughly half of its $1.8 billion in advertising revenue despite it being lower margin.
But, unlike Facebook, Twitter is lacking one very important investable component: profits! Twitter isn't profitable despite its rapid revenue growth and the ebb and flow nature of the advertising environment doesn't exactly lend to a consistent long-term growth outlook. At 25 times next year's $1.12 billion revenue estimate, Twitter would essentially have to grow in excess of 50% per year for the next three years just to be on par with Facebook's valuation -- not an easy task.
I've yet to see how Twitter plans to really launch its brand beyond advertising revenue, and until I see that, I don't see any reason to pay north of $50/share for a company that isn't profitable.
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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