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.
Best Buy (NYSE: BBY )
To quote a famous line from the movie Se7en: "What's in the box?" The answer is a surprise that most investors would prefer not to know, apparently, given the stock's 40% swoon over the past month.
Best Buy shares were absolutely rocked this past week after the electronics retailer announced holiday sales results (a nine-week period) that demonstrated a same-store sales decline of 0.8%, considerably lower than the 1.7% same-store drop reported in the year-ago period, even as its online same-store sales surged 23.5%. Investors, however, expected Best Buy's sales to grow via price-matching initiatives designed to take on Amazon.com (NASDAQ: AMZN ) and end the "showroom" effect that has consumers using Best Buy as a playground and Amazon as the purchase point. These results indicate there's still work left to be done.
In short-sellers' defense, Best Buy stock had probably come too far, too fast, given the company's lack of genuine top-line revenue growth and the fact that it was supplementing its bottom-line results with share repurchases. However, the shellacking shares took last week may also have been an overreaction, considering that Best Buy still produced $564 million in free cash flow over the trailing 12-month period and is focused on shrinking its square footage in order to reduce costs and make its stores more nimble from an inventory perspective.
Also consider that Best Buy had $500 million in net cash as of its most recent quarter, putting it far out of the "trouble" territory that other brick-and-mortar electronics are in.
With the company matching prices and putting its focus on next-generation products while de-emphasizing its reliance on televisions, it will be a slow but positive change for Best Buy. This means any further downside could represent an intriguing buying opportunity for shareholders. I'd suggest getting this cash cow on your watchlist.
Neurocrine Biosciences (NASDAQ: NBIX )
Despite having more than doubled in price over the past three weeks, shares of Neurocrine Biosciences should remain high on investors' watchlists following its phase 2b study of its VMAT2 inhibitor, NBI-98854, for tardive dyskinesia, a disease characterized by abnormal and involuntary muscle movements.
According to Neurocrine Biosciences press releases, the 12-week responder rate was 54%, with the abnormal involuntary movement scale demonstrating a 2.6-point decline at week six compared to a minimal 0.2-point AIMS decline at that point for the placebo. More importantly, the placebo response rate at week six was a mere 18%, while two-thirds of the intent-to-treat group were deemed "very much improved" or "much improved."
Based on varying estimates of the drug, NBI-98854 could peak around $500 million to $700 million in sales. Given that the company is valued at roughly two times these estimates, some investors would perceive Neurocrine to be fully valued here. I would contend that with no drugs specifically designed to treat tardive dyskinesia on the marketplace, these peak estimates may be a bit light, given the pricing premium Neurocrine may be able to place on its drug, assuming approval.
We're still talking about a long road to success, but I like what I've seen so far from Neurocrine and have added the company to my own watchlist.
Cell Therapeutics (NASDAQ: CTIC )
Every week I offer up at least one unique short-sale idea, and this week I'll turn to a friend of short-sellers throughout the years: Cell Therapeutics.
After a decade, there are finally some positive aspects of Cell Therapeutics worth talking about. The biopharmaceutical company now has Pixuvri approved in Europe as a treatment for multiply relapsed or refractory aggressive non-Hodgkin B-cell lymphoma, recently received a positive reimbursement recommendation from NICE in the U.K. and also had tosedostat removed from clinical hold in the U.S. Not to mention that Cell Therapeutics can soon expect results from its first phase 3 study of pacritinib for myelofibrosis, as well as its study of opaxio in ovarian cancer -- possibly as soon as next year.
Despite these recent developments, which I would certainly call a step in the right direction, I still have doubts about this company.
For instance, last week we discovered that Novartis (NYSE: NVS ) chose not to exercise its rights to license both Pixuvri and opaxio from Cell Therapeutics. Had Novartis jumped on board, it could have granted Cell Therapeutics $270 million and $111.5 million for opaxio and Pixuvri milestones, respectively. However, Novartis' passing has me concerned that without a U.S. approval, which Cell Therapeutics has previously been unable to secure, Pixuvri's and opaxio's long-term potential simply aren't worth the risk.
In addition, Cell Therapeutics has a nasty history of diluting shareholders into oblivion to keep its research and development program running. Over the past decade the company has burned through just shy of $1 billion in capital, with only Pixuvri's Western European approval to show for the effort. Meanwhile, its share price is off by 99.99%! I'm not certain how you can trust management here when we've seen promises dashed by poor data and share offerings in the past. If Cell Therapeutics heads much higher, this could be an intriguing short-sale candidate.
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 Best Buy to my Watchlist.
- Add Neurocrine Biosciences to My Watchlist.
- Add Cell Therapeutics to My Watchlist.
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