3 Stocks to Get on Your Watchlist

I follow a large number 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. I'll also discuss 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 do 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.

Salix Pharmaceuticals (NASDAQ: SLXP  )
The big day is almost here for Salix Pharmaceuticals, a diversified pharmaceutical company that shocked investors in November when it agreed to buy Santarus for $2.6 billion in cash.


Salix Pharmaceuticals corporate presentation. Source: Salix Pharmaceuticals.

At the time, the purchase price for Santarus seemed a bit steep, but the deal's true value may come down to a decision later this month from the Food and Drug Administration.

On or before July 16, the FDA is expected to hand down its ruling on ruconest, an investigational treatment for hereditary angioedema, a rare genetic disorder that can cause swelling of the face and airways, as well as abdominal cramping. Since hereditary angioedema, or HAE, is a rare disease, any approved therapies to treat HAE get lengthy periods of patent exclusivity, as well as the ability to attach a lofty price tag to their approved compound.

In phase 3 studies, Santarus and its collaborative partner Pharming Group noted that ruconest met its primary endpoint of a statistically significant difference in the time it took for the beginning of symptom relief relative to the placebo. The ruconest arm median time to relief was 90 minutes compared to a full 152 minutes for the placebo group. The therapy was generally well-tolerated and treatment-emergent adverse events were more prevalent in the control arm than in the ruconest intent-to-treat group, implying safety as well.

If approved, I suspect ruconest has the potential to generate $300 million in peak sales within the U.S. and it could double that figure by also finding success in the EU. Of course, Salix is going to have quite the crowded field to contend with, including global pharmaceutical giant Shire (NASDAQ: SHPG  )  Shire purchased ViroPharma in order to get its hands on the FDA-approved HAE medication, Cinryze, to complement its own in-house therapy Firazyr, among other reasons. In its first-quarter results, Shire noted an 80% rise in Firazyr sales to $74.9 million, while Cinryze sales added $85.6 million. In other words, Shire isn't going to go quietly into the night. 

Things are about to get interesting for Salix shareholders one way or another, and I suggest you grab some popcorn and take a front-row seat.

Family Dollar Stores (NYSE: FDO  )
The past year has been a busy time for activist investor Carl Icahn, who recently announced his intentions to sink his teeth into discount variety store Family Dollar in order to unlock shareholder value.

After disclosing a 9.4% stake in the company according to a Securities and Exchange Commission filing, Icahn sent a letter to Family Dollar CEO Howard Levine essentially demanding that the company find a buyer since it was seeing declining margins and increasing levels of competition. In response, the Family Dollar board of directors did hire a strategic advisor to explore alternatives to boost shareholder value, but it also enacted a poison pill measure to ensure that Icahn couldn't simply take over the company at will.


Source: Family Dollar.

The big question here is, would a merger make sense? In theory, I believe Icahn is right to be so aggressive with management. Although margins are all fairly similar for the big three dollar stores (Family Dollar, Dollar Tree, and Dollar General (NYSE: DG  ) , Family Dollar has the weakest five-year growth potential by far. Dollar General's considerably better selection and targeted marketing campaign has worked wonders to drive cost-conscious consumers into its stores.

Furthermore, if a merger were to take place between Family Dollar and one of its two rivals, it would give the combined entity firmer ground to stand on in order to compete against Wal-Mart. Dollar General has been cited as the more likely pick simply because of its size, but I have to wonder just what kind of premium either company would be willing to pay for Family Dollar with Icahn's letter now out in the open. At nearly 20 times forward earnings and with a long-term organic growth rate likely in the low-to-mid single-digits, it's not as if Family Dollar is going to be a lot of new growth potential to a purchaser. Instead, it's the cost synergies from distribution channels and purchasing clout from being larger that would ultimately be the difference maker should a buyout occur.

For now, I'm not sold on the idea that Family Dollar will take the plunge with either of its peers, but this is a situation that merits watching.

Repligen (NASDAQ: RGEN  )
Relax, short-sellers; after taking last week off I've returned to give you some potential fodder to feast on! This week's potentially short-sale-worthy watchlist stock is bioprocessing products developer Repligen.

Like a lot of the short-sale opportunities that I feature on a weekly basis, Repligen has a number of good qualities that could make it an attractive company at some point. Its bioprocessing products are used in the development of monoclonal antibodies and various biologic drugs. In other words, with the number of ongoing clinical studies only increasing you can see how the demand for Repligen's products can easily increase over time.

In addition, Repligen announced the acquisition of Refine Technology's bioprocessing business four weeks ago for a grand total of $24.5 million. The deal should add $3.5 million to $4 million in revenue, but will be detrimental to 2014 EPS for the time being. Deals like this should help Repligen's long-term potential and possibly diversify its product pipeline. 

But looking at this from a fundamental perspective, even with the number of clinical studies growing, Repligen's nearly 200% romp higher over the trailing year just doesn't make much sense. In order to see rapid share price appreciation, I'd expect robust revenue. The reality is that Repligen's revenue stream will be flat between 2013 and 2015. Furthermore, Repligen is valued at a whopping 64 times forward earnings, which seems excessive for a company that I project can grow organically in the mid or perhaps even high single-digits annually.

Unless Repligen can find a fountain of growth, there's just no reason for shareholders to bring this sort of premium on a single-digit growth company, no matter how impressive it might look on paper.

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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