I follow quite a lot of companies, so the usefulness of a watchlist for 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.
Gilead Sciences (NASDAQ:GILD)
You wanted a pullback in Gilead Sciences? You got it, folks!
The biotech sector has been absolutely skewered over the past seven weeks as skeptics have proclaimed this the end of the multiyear rally. To some extent I agree with those skeptics. The number of wholly clinical-stage companies and single-drug pipelines that commanded valuations of $1 billion or more was getting overwhelming. But for established and profitable pipelines like Gilead, this looks like the perfect opportunity to consider going shopping.
As I mentioned over the weekend, Gilead has a number of key catalysts that are expected to drive revenue and profit markedly higher over the coming years. The first is Sovaldi, its oral hepatitis C therapy that can be administered without the need for interferon in genotype 2 and 3 patients. One of the nasty side effects of interferon is that it can cause flu-like symptoms, so Sovaldi brings with it a big improvement in patient quality of care for select genotypes. To add, Sovaldi has also been shown to be incredibly effective in some instances in as little as eight weeks in ongoing studies! Long story short, this has blockbuster potential written all over it.
But investors won't want to forget about Stribild either, the company's four-in-one HIV therapy. Designed to slow or stop the progression of HIV-1 in the body, Stribild is comprised of four in-house compounds compared to its previous HIV-1 therapy Atripla, which was a combination of three therapies from three companies. With Stribild being an internally created drug it'll mean more revenue and potentially beefier margins for Gilead.
The projections for 2015 are staggering, with about $9 billion in profits projected and a minuscule forward P/E of just 11. If I were you, I would strongly consider adding this stock to your watchlist.
Silver Wheaton (NYSE:SLW)
Stock market swoon making you a bit queasy? Perhaps it's time to start thinking about a potential hedge against inflation and/or the potential for a downturn in the stock market. Perhaps it's time you took a closer look at Silver Wheaton.
Silver Wheaton isn't a miner in the traditional sense of the word. Instead, it's a royalty-interests company that supplies cash up front and through installments to gold and silver mining companies looking to construct or expand a mine. In exchange for this cash, Silver Wheaton gains the right to purchase all or some of the produced metals at the mine or mines in question for a fixed rate that's often well below spot prices.
There are a number of advantages to these royalty deals. First and foremost, Silver Wheaton's contracts are geared for the long-term. Many are for the life of the mine which gives shareholders the expectations of relatively consistent cash flow. Second, it allows investors to make a somewhat direct play on the price of silver or gold while collecting a dividend, which is something you can't do by investing in precious metals. Since Silver Wheaton's margins are directly affected by the up and down movements in gold and silver there aren't too many surprises come earnings season. Lastly, there are no unforeseen expenses for Silver Wheaton. Although it can find itself at the mercy of the production capacity of the companies with which it has entered into royalty deals, it holds no ongoing expense liabilities for mine upkeep beyond its up-front cash obligations.
Of course, Silver Wheaton needs metal prices to cooperate if it's going to head notably higher. The good news here is that even if they remain somewhat stagnant Silver Wheaton's average cash costs of $4.12/oz. of silver and $386/oz. of gold are more than low enough to allow for ongoing profitability. At roughly 20 times forward earnings, Silver Wheaton could be a steal for fearful investors.
Rite Aid (NYSE:RAD)
Drugstore chain Rite Aid has been one of the many bright spots within the consumer goods/health care space, but has this turnaround story come too far, too fast?
On paper Rite Aid is hitting the sweet spot with same-store pharmacy sales rising 3.5% in the fourth quarter. Rite Aid looks to be one of a number of beneficiaries from the rollout of Obamacare, which should encourage more newly insured people to visit their doctor for preventative care visits. In turn, these visits are expected to translate into more prescription orders, fueling Rite Aid's growth and attracting value investors with its reasonable forward P/E of 15.
But there's another side to Rite Aid that I find concerning.
To begin with, Rite Aid is facing a lot of front-end sales competition (i.e., nonpharmacy goods) from its peers, which have introduced loyalty reward programs and, in some cases, steep discounts in order to drive consumer traffic. The truth is consumer loyalty to drugstores isn't very high, so Rite Aid is going to need to do a lot to stand out in the drugstore sector. As of Rite Aid's latest quarter, front-end sales dipped by 0.7%.
Second, Rite Aid is working with $5.6 billion in net debt, which constrains what it can do from a strategic standpoint and also requires the company to devote precious cash flow toward eventually paying down this debt. Although not so dire as it once was, this debt will more than likely prevent shareholders from collecting a dividend for a long time. Rite Aid's bigger peers, though, both pay out handsome dividends.
Finally, Rite Aid's cost-cutting can only take the company so far. In spite of high hopes for improved prescription-fill rates the fourth-quarter demonstrated a 1.8% decline in same-store prescriptions filled. I'll attribute a good chunk of that drop to fewer flu shots administered, but it's still discouraging, considering that Rite Aid doesn't appear to be gaining new consumers and its peers are outpacing it in the growth department.
If you're looking for a stock with some possible downside, short-sellers might be wise to get Rite Aid added to their watchlist.
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 Gilead Sciences to My Watchlist.
- Add Silver Wheaton to My Watchlist.
- Add Rite Aid to My Watchlist.
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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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