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.
Ford shares stumbled into the end of the year by recently announcing that it anticipated reporting a profit of $7 billion to $8 billion for the year after a forecasted profit of $8.5 billion in fiscal 2013. That move left shareholders a bit bewildered, given that its European operations have improved and its China sales have taken off. So what's a shareholder to do, you wonder? I'd suggest get ready to buy more Ford!
The primary reason Ford's earnings will take a hit in 2014 is that it'll be introducing more than a dozen new models in its North American markets. The added expenses of advertising these models and increasing public awareness is bound to boost its costs temporarily and eat into profits. But look at how successful Ford has been at introducing new models recent years. It did the exact same thing in China, and its unit sales are up more than 40% this year alone as it closes in on 5% total market share in the fastest growing auto market in the world. For a little earnings pain in 2014, Ford has the potential to drive 10% growth in sales through 2017.
Ford also has a unique opportunity to gain an even stronger foothold in China. Last week, General Motors (NYSE: GM) announced that it will recall 1.5 million vehicles manufactured between 2006 and 2012 for a faulty fuel-pump bracket that could call into question its reliability. Couple this bad news for General Motors with Chinese citizens' shaky relationship with Japan, and that leaves U.S. automaker Ford, with its improved fuel economy and sleek designs, as the primary beneficiary.
If Ford falls much further, I am thinking about opening a position in my personal portfolio.
AVG Technologies (NYSE: AVG)
Speaking of companies with near-necessity products that are ending the year on a sour note, how about Internet and mobile security software provider AVG Technologies!
Shares of AVG were clobbered in early November, after the company delivered third-quarter results that simply didn't live up to shareholders' lofty expectations. For the year, AVG guided toward a midpoint of $400 million in sales and adjusted EPS of $2.01 to $2.06. By comparison, Wall Street had expected AVG to report EPS of $2.07 for the full year.
Yet dig a bit deeper, and you'll discover that things aren't nearly as bad as they seem.
For instance, AVG ended the third quarter with 172 million active users, including 57 million mobile users. Mobile is an important source of growth for AVG and it alone could put AVG on a potentially larger Internet security company's radar.
In addition, you have to understand that Internet and virus security is no longer an optional piece of software. Because of sophisticated viruses and hackers, these firewalls are a practical necessity. Although AVG lacks the OEM agreements that some of its peers, like Intel's McAfee, possess, AVG does offer much of its software in a "freemium" platform. Consumers love free services, and AVG's exposure from its open source platform has thus far been priceless.
With the company valued at less than nine times this year's EPS and peddling a highly demanded product, it could very well be a strong turnaround candidate in 2014.
Burlington Stores (NYSE: BURL)
For those of you looking for an intriguing short-sale idea to start the new year off right, how about taking a closer gander at discount retailer Burlington Stores which only recently went public.
Burlington obviously has a lot going for it in that it carries discounted retail and accessories which is normally the perfect recipe to drive traffic into its stores. With a steady dose of new stores opening and 5% comparable-sales growth through the first three-quarters of the year, Burlington has used that momentum to spring its stock to a new 52-week high. As for me, though, I see a potentially worrisome flaw that investors may want to take note of.
This flaw is that Burlington isn't immune to the weakness permeating throughout the retail sector. Wal-Mart (NYSE: WMT), which has a similar setup to Burlington in that it delivers below department-store priced apparel and accessories, has missed Wall Street's same-store sales expectations in each quarter this year as higher payroll taxes, delayed tax refunds, and the prospect of higher health-care costs via Obamacare kept shoppers from purchasing discretionary items. A similar fate looks to be descending upon Burlington. While comparable-store sales are up 5% year to date, comparable-sales in the fourth quarter were expected to be up only 2% to 3%. As this figure falls, Burlington's share price has no business heading higher.
In the current environment, a midpoint of 2.5% same-store sales growth would be considered good, but with its stock valued at nearly 24 times forward earnings, that seems awfully pricey. If shares head higher from here on out, it could be a wise idea to start hedging those bets with puts or short shares.
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 Ford to My Watchlist.
- Add AVG Technology to My Watchlist.
- Add Burlington Stores to My Watchlist.
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