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.
Advanced Micro Devices (NYSE: AMD )
With earnings season officially kicking off, one technology name that risk-seeking investors may want to consider adding to their watchlist is Advanced Micro Devices, or AMD.
AMD has come under intense pressure as demand for its microprocessor chips used in PCs has rapidly dried up. The emergence of tablets, smartphones, and even wearable devices has caused consumers to move beyond just a desktop computer or laptop and rethink their connectivity capabilities. Therefore AMD has been forced to refocus its research and development in order to ensure its survival.
AMD has taken the road less traveled, refocusing itself as the primary processor-developer for gaming consoles and also adding an emphasis on its graphics card production as well. However, AMD is also set to debut a number of new products for big data servers in the coming years, including the AMD Opteron A1100 series, which first made its appearance in late January. With a few months of sales under this product's belt, I'd be curious to see how well it has been received by larger enterprises.
The good news is that we won't have to wait long to find out: AMD is set to report its results after the closing bell on Thursday. Current estimates call for $0.02 in EPS and $1.4 billion in revenue, a 24% increase from the previous year. AMD has a history of topping Wall Street's earnings estimates, but I'm more interested in whether or not it can top the Street's revenue forecast. If I had to guess, I would say yes, simply because Q2 PC sales came in better than expected and Intel also recently boosted its guidance -- but only time will tell if that call is correct.
V.F. Corp (NYSE: VFC )
Another company with make-or-break potential this earnings season is V.F. Corp., the company behind activewear brands like North Face, Timberland, and Vans.
V.F. is set to report on Friday and will be among the first retailers to report results from the previous quarter. What's really worth watching is that V.F. could help set the tone for the entire sector, as its active brands have performed considerably better than teen-retailers and discount retailers over the past couple of quarters. If V.F. can outrun Wall Street's estimates, it could signal to investors that the worst of the polar vortex is in the rearview mirror and that consumers are once again ready to spend.
V.F.'s management has actually set lofty growth goals of $17.3 billion in revenue and $4.50 in split-adjusted EPS by 2017. When these forecasts were issued for 2013 it represented 10% compounded annual revenue growth and 13% compounded earnings growth. With EPS growing faster than revenue it also signals the company's willingness to repurchase its own shares as well as become leaner and reduce unnecessary costs. As I noted in May, its North Face, Vans, and Timberland brands are projected to see sales growth by 74%, 93%, and 53%, respectively, between 2013 and 2017.
In other news, speculation has been swirling for some time now that the struggling Quiksilver would make a perfect addition to V.F. The Quiksilver brand has plenty of history and a fairly steady core following, but it lacks the financial backing to escape its cyclicality (i.e., most consumers associate the brand with beachwear). The coming conference call later this week could help spell out V.F.'s acquisition strategy going forward and determine whether or not Quiksilver is in those plans.
Also, it's pretty hard to forget that V.F. has grown its dividend by 304% over the trailing decade, so regardless of its earnings report, this is a company that should be on every income investor's watchlist.
Gentiva Health Services (NASDAQ: GTIV )
As always, I also have a company that pessimists out there would be wise to keep their eyes on: Gentiva Heath Services.
Gentiva is a home health services company that's been the hope of Kindred Healthcare's (NYSE: KND ) growth plans for the past couple of months. Following previously unsuccessful bids, Kindred earlier this week boosted its bid for Gentiva to $16 per share. Considering that Gentiva shares were valued around $8 at the beginning of May, this represents a doubling in its value over the course of just two months.
For Kindred the deal makes sense, as it would give the company greater geographic exposure across the U.S. and would likely see instant earnings accretion. Also, the cost savings from combining their similar businesses could translate into beefier profits and improved margins within a few years.
Gentiva, though, isn't having any of it. Gentiva implemented a poison pill in May to ensure that Kindred couldn't manage a hostile takeover of the company despite the fact that $16 looks to be a fair offer for the company based on its current prospects.
More importantly, Gentiva's unwillingness to be bought could be a problem because its heavy reliance on government-sponsored programs such as Medicare and Medicaid could come back to bite its growth prospects. The Centers for Medicare and Medicaid Services has made it quite clear that government-sponsored reimbursements are likely to head lower throughout the decade as the Affordable Care Act pushes businesses slowly away from relying on government-sponsored dollars. For Gentiva this likely means an organic growth rate in the low single-digits at best, which is somewhat worrisome with $1.1 billion in net debt.
Even if Gentiva agrees to be bought, I simply don't think the purchase price can reasonably head any higher than where it already is. With the company trading slightly above Kindred's offer price, I'd suggest that there's either an arbitrage opportunity to the downside or a potentially huge downside opportunity if the deal falls through in its entirety.
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 Advanced Micro Devices to My Watchlist.
- Add V.F. Corp. to My Watchlist.
- Add Gentiva Health Services to My Watchlist.
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