In this clip from the Motley Fool Money radio show, Ron Gross, Matt Argersinger, and Jeff Fischer share the stocks on their radar this week -- Modine Manufacturing (MOD +5.03%), Starbucks (SBUX 1.34%), and biotech company Celgene (CELG +0.00%), respectively.
Each company represents a different part of the market, so how they respond to their unique situations will be different. Modine, for example, is a tiny company that's facing headwinds and needs to cut costs, while Starbucks, which is orders of magnitude larger, is still on a major growth trajectory overseas. Celgene, which is of similar size, needs to act quickly within its narrow of window of opportunity to capitalize on its drug discoveries.
Our hosts explain why these are important concepts for each and then respond to a pointed question about each from the man behind the glass, Steve Broido, about their pick. Which one will walk out with Steve's stamp of approval? Tune in to find out.
A transcript follows the video.
This podcast was recorded on May 27, 2016.
Chris Hill: We're going to go to our man, Steve Broido, on the other side of the glass for stocks on our radar, and he'll hit you with a question. Also on the other side of the glass this week, longtime listener Harry Yang visiting us from the great state of Wisconsin. Thank you, Harry, for stopping by. Ron Gross, you're up first. Steve Broido's going to hit you with a question. What are you looking at?
Ron Gross: Modine Manufacturing, MOD, a micro-cap manufacturer of thermal management systems for vehicles and ventilation and air conditioning systems, industrial equipment. Only a $500 million company. They reported earnings earlier this week that looked pretty good, despite the fact that they sell into some end markets that are really troubled, such as agriculture and mining. Really strong balance sheet. The company is cutting costs and doing what it needs to do to get through this tough period. It's only an $11 stock. I think it's actually worth $17, 50% upside from here. Again, they're cutting costs during these bad times, so they're going to be lean and mean when the tide eventually turns.
Hill: Steve, question about Modine Manufacturing?
Steve Broido: How can Matthew Modine be such a great actor and also in this company at the same time?
Gross: There's actually a very large lawsuit against Modine for the use of the name -- no, I'm just kidding. [laughs] I think Matthew Modine would be a perfect spokesperson for this.
Hill: Matty?
Matt Argersinger: I'm looking at Starbucks, SBUX. It's creeping closer down to $50. If you can get the stock for less than $50, you're paying only about 25 times forward earnings, which seems still expensive, but for a company like Starbucks, with what they're doing in China, for example, the growth they still have overseas, I think that's a great multiple to pay, if you can get it. So, Starbucks, it's on our watch list at Million Dollar Portfolio; we've been waiting for a better price to get into the portfolio.
Hill: Steve, question about Starbucks?
Broido: I don't drink coffee. Should I care about this business at all?
Argersinger: Yes, because tens of millions of people do drink a lot of coffee, and they love going to Starbucks.
Hill: What does success look like for them in China? It's understandable; they have some pretty robust targets that they're trying to hit. Is this a situation where, as we've talked about before with Elon Musk and production targets for Tesla Motors, where it's like, even if he comes relatively close, that's fantastic -- can Starbucks come close in China? Or do they have to hit those numbers?
Argersinger: I think they can come close. They're trying to double their store count right now. They have around 2,000 stores. They're going to double that, probably, by 2020. I'm actually watching revenue per store more closely, because revenue per store in a place like the United States or Europe is going to be much higher for a long time compared to China. But if they can actually do well with that number, and it doesn't drag down overall sales so much, that's key. The growth is great, the store count is great, but I also want revenue per store in China to be good as well.
Hill: Jeff Fischer, what are you looking at?
Jeff Fischer: Steve, what do you drink, if the coffee is not your daily ritual?
Broido: A lot of Diet Coke.
Fischer: In the morning, you wake up and crack one open?
Broido: Yep. Love it.
Fischer: We have to get you onto coffee. All right, we're talking about Celgene, an $84 billion biotech behemoth. Their biggest-selling drug is for blood cancer, and they just recently protected it from generic sales until at least 2022. The company right now is on track to grow earnings per share about 20% annualized through at least 2020, and they have a really rich product pipeline, a lot of things coming up, a lot of key data coming out in 2016 and 2017. Interesting company, at a mid-teens multiple to earnings looking about a year forward, even while it's growing 20%-ish.
Hill: The ticker?
Fischer: Celgene is CELG.
Hill: Steve, question about Celgene?
Broido: Is patent protection -- that these drugs deal with -- a good thing or a bad thing for them?
Fischer: Patent protection generally lasts 17 years from the time of discovery or filing. That's a good thing. It protects their profits. They put a lot of money into research and development. They need some time to earn that money back. And given the long development time for a drug and approval time, they don't have that many years to really make their money back. That's part of the reason the prices are so high, unfortunately. And then, patent protection goes away and generics roll out, and that eats away their margins. Yeah, they need to generate real profits. They need patent protection, definitely.
Hill: Celgene, Starbucks, Modine Manufacturing. What do you like, Steve?
Broido: Modine. I'm 100% Vision Quest, Matthew Modine.
