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.
It's a rare day when I advocate adding an over-the-counter stock to your watchlist, but megacap Japanese automaker Nissan is a reasonable exception to the rule.
As with all automakers, the global recession really put a hurt on Nissan, causing the auto giant to turn in a loss in 2009 and only deliver a marginal profit in 2010. Within the U.S., Nissan struggled to gain traction with the resurgence of Detroit's big three and the introduction of a number of new electric vehicles and hybrids that hooked cost-conscious consumers.
But times are changing. Nissan is on fire, and it has a number of factors to thank for its recent sales surge that has pushed its U.S. market share to 8.6% from just 8% last year.
First, as Foolish senior auto analyst John Rosevear noted in March, Nissan's sales incentives for the Altima have been higher than just about any other midsize sedan in the industry. Incentives encourage consumers to buy, and if the car and brand turn out to be dependable, then these same consumers could become customers for life. Year to date, Altima sales are up 5.2% from this time last year, and the model is the 11th best-selling vehicle in the U.S. for 2014.
Secondly, sales of the Sentra are soaring through the roof as consumers are just eating up its recent redesign and improved fuel economy. Once again cost-conscious consumers have to love the ability to get into a Sentra for well under $20,000 at a time when hourly earnings aren't increasing at a quick enough rate for most workers. Sales of the Sentra are up a whopping 41.3% year to date.
Finally, Nissan is also seeing strong growth outside the U.S. in China despite long-standing tension between the two countries. By focusing on emerging markets Nissan can tap into regions that are more resistant to global slowdowns because they can grow independently.
With Nissan valued at less than 10 times forward earnings and having a lot of wind in its sails, it's time for value investors to give the company a closer look.
Kandi Technologies (NASDAQ:KNDI)
That's right, folks, there are two foreign automakers to get on your watchlist this week. In addition to electric vehicles, China-based Kandi Technologies also manufactures three-wheeled motorcycles, all-terrain vehicles, go-karts, and auto generators.
Kandi started the week off with a bang after it announced that its joint-venture subsidiary, Kandi Electric Vehicle Group, which is owned 50-50 by Kandi and Shanghai Maple Guorun Automobile, received a $31.8 million electric-vehicle subsidy from the Chinese government for selling more than 3,000 EV's between June and December 2013 and for moving more than 1,000 EV's during the first quarter of 2014.
On one hand, there's a lot of promise for a diversified vehicle maker like Kandi. Its affordable luxuries speak to China's burgeoning middle class, and its sales during Q1 prove this fact. During the first quarter total revenue catapulted 174% higher to $40.2 million as EV product revenue grew 384.5% and income from its aforementioned joint venture more than doubled to $1.7 million from $0.8 million.
But more than that Kandi is a long-term play on China's superior global growth prospects and the fact that China will need to implement stringent pollution controls to restrict the release of pollutant gases into its major cities. Electric vehicles are one of the many solutions to China's long-term woes, meaning Kandi could continue to see improved sales and government-sponsored subsidies for many years down the road.
On the other hand, counting on consistent subsidy payments from the Chinese government could set investors up for a disappointment. Unlike U.S. subsidies which can be accounted for with regularity, Chinese government subsidies aren't exactly paid with any promptness per my Foolish colleague Travis Hoium, who knows a thing or two about anything concerning alternative energy. In addition, this subsidy, while a nice boost to its top line, isn't guaranteed to continue, so it could mask the fact that Kandi's EPS growth is considerably more tame than its organic revenue growth would imply.
All told, this is an intriguing company with plenty of potential. It still has some hurdles to work through, including the real test of whether it can stand up to foreign EV competition when it fully enters China. In the meantime I'd suggest adding Kandi Technologies to your watchlist.
Vertex Pharmaceuticals (NASDAQ:VRTX)
As always, I have a company short-sellers should be keeping their eyes on; and as an added change it's actually a company I've generally liked and truly hope succeeds. This would be none other than high-flying biotechnology company Vertex Pharmaceuticals.
Vertex shares have been on fire since reporting positive results from its late-stage TRAFFIC and TRANSPORT studies involving the combination of investigational compound VX-809 and its already FDA-approved drug Kalydeco in patients with cystic fibrosis (CF) that have two copies of the F508del mutation (the most common mutation of CF).
As noted in Vertex's press release, all four study arms demonstrated statistical significance when it came to an improvement in forced expiratory volume in one second, or FEV1, with a mean absolute improvement of between 2.6% and 4% from baseline relative to the placebo. Vertex and shareholders obviously believe the data carries weight that should allow it to file a new drug application for the combo and based on the data I'd personally suggest a better than 50% chance of approval (remember, this is the Food and Drug Administration where there are no certainties!).
But Vertex shares have gained more than $7 billion in market value since this data was released, and let's not forget that one of the key drugs that put the company on the map -- hepatitis C treatment Incivek -- is now obsolete and a has-been among blockbuster drugs. Essentially, Vertex's entire pipeline is based on its potential to treat cystic fibrosis.
The good news is that I do see a bright future over the long run for Vertex and its product portfolio of Kalydeco and VX-809. Patient quality of life should improve and Vertex shareholders have already seen some impressive gains. All in all it's a win-win in this aspect.
Yet at nearly $23 billion in market value it's basically been priced out of buyout range, and it's valued at nearly six times 2017's annual sales estimates and 14 times 2017's EPS estimates according to Wall Street firms. If this were a current year estimate I'd proclaim Vertex a possible bargain -- but we're talking about three years into the future! This assumes no issues with drug pricing, insurance coverage, competition, drug launch, and all the other intangible factors that creep in unexpectedly. It just seems like a lofty price to pay for a company that's yet to earn its new $20-billion-plus valuation. I'd suggest keeping a close eye on Vertex as I suspect there could be some downside potential over the next year or two.
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 Nissan to My Watchlist.
- Add Kandi Technologies to My Watchlist.
- Add Vertex Pharmaceuticals 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.
The Motley Fool recommends Vertex Pharmaceuticals. 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.