3 Stocks to Get on Your Watchlist

Corrections Corp. of America, NextEra Energy, and Dillard's are this week's must-watch stocks.

May 7, 2014 at 2:03PM

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 that 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.

Corrections Corp. of America (NYSE:CXW)
Given that the United States locks up more of citizens than any other country around the world, Corrections Corp. of America, or CCA, could represent an intriguing buy opportunity now that shares have slipped more than 15% from their 52-week high.

A couple of gray clouds overhanging CCA in recent months have hindered any chance of upside for existing shareholders. The biggest concern is that its contracts to build and operate prisons come from the government, and state and federal branches are desperately looking for ways to reduce spending. This could mean slower growth in the immediate future for CCA.

Source: Flickr user Rennett Stowe.

There's also the worry that CCA is carrying more than $1.1 billion in long-term debt and may turn to share offerings in order to raise cash to build or acquire new facilities. While expansion can yield greater profits, dilution from new shares could temporarily weigh on shareholders.

But there are also a number of immediate positives when it comes to CCA (and a number of long-term reasons why investors in this stock will sleep well at night). Governments' need to contract out prison services is a practical necessity, meaning CCA's cash flow is fairly predictable quarter to quarter.

CCA's dividend is impressive as well, primarily due to the company's conversion to a real estate investment trust as of 2013. As a REIT the company receives welcome tax breaks, but in turn it must pay out at least 90% of its profits to shareholders in the form of a dividend. I suspect CCA's current yield, which is over 6%, is sustainable and could double your seed investment on yield alone in as little as 12 years.

I like basic-needs stocks, and this one could help you get rich with fairly minimal risk.

NextEra Energy (NYSE:NEE)
Electric utility NextEra Energy may be nipping at a new high, but that's no excuse not to give this company serious consideration as a long-term investment.

NextEra Energy last week reported its first-quarter results, and for all intents and purposes it was a lights-out beat. Revenue for the quarter improved to $3.67 billion from $3.28 billion in the prior-year period, while adjusted net income soared $0.19 per share past Wall Street's expectations to $1.26 per share. The amazing thing about this outperformance is that NextEra noted a $0.11 negative impact from the cold winter weather during the quarter. Of course, even this negativity was offset by better-than-expected impacts from its wind resources and Maine fossil fuel assets.

Wind Power

Source: Flickr user Dawncy.

The general allure of NextEra Energy is that it has the biggest portfolio of renewable-energy assets in the U.S. NextEra has an approximate electric generating capacity of 42,500 megawatts, of which well over 10,000 MW comes from wind. It is also slated to add 2,000 MW-2,500 MW of wind power between 2013 and 2015. This doesn't even mention its solar, geothermal, or hydroelectric assets.

Just to keep shareholders on their toes, NextEra also announced last week via an SEC S-1 filing that it plans to spin off its renewable energy assets into a "yieldco." Yieldcos often have predictable revenue streams that lead to steady cash flow and usually Treasury bond-beating yields. It could give NextEra's remaining portfolio much-needed access to low-cost capital, only furthering the company's comparative advantage over its peers through low-cost renewable electric generation.

While NextEra's debt might scare away investors who aren't familiar with the company, its strategy appears to be working and its recent SEC filing could mean exciting times are ahead for shareholders.

Dillard's (NYSE:DDS)
Every week I offer up a possible morsel for those hungry short-sellers out there, and this week department store chain Dillard's fits the bill.

Let me begin by saying that I've been brutally wrong about Dillard's up to this point, so you should definitely take my opinion here with a grain of salt and, as always, conduct your own deeper dive into the company. Nonetheless, I haven't changed my opinion that shares could be grossly overvalued at their present level considering a number of headwinds and valuation concerns.


Source: Flickr user Nicholas Eckhart.

Practically the entire retail sector is weak right now. We've seen pushback because of the colder winter, but we're also seeing consumers turning away from malls and department stores during critical holidays and instead using online shopping portals for convenience and price. Although Dillard's has an online presence, that presence is much smaller than a number of online stalwarts. To me this signals the potential to bleed long-term customers unless it maintains a fairly liberal stance with discounting -- and as we know, bigger discounts could yield margin deterioration.

We're also seeing more cost-cutting from Dillard's than actual top-line growth. Operating expenses for the past quarter improved 90 basis points relative to sales, but gross margin actually declined 180 basis points year over year. Furthermore, same-store sales gross was merely 2% which, even with a forward P/E of 11, isn't very encouraging. This indicates that tighter cost controls and bigger discounts are the main drivers of Dillard's profits at the moment. While that's good news for now, investors should keep in mind that cost-cutting can only drive earnings per share so high before it doesn't work anymore.

Like I said, I've been wrong in the past on Dillard's, but its convincing lack of growth in this economic environment makes it an easily passable and possibly shortable stock.

Foolish roundup
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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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.

The Motley Fool owns shares of Dillard's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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