I follow quite a lot of companies, so the usefulness of a watchlist to me cannot be overstated. Without my watchlist, I'd be unable to keep up on 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, these aren't concrete buy or sell recommendations, nor do I guarantee I'll take action on the companies being discussed weekly. What I can promise is 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.
I figured I'd start us off by looking at a very unloved electric utility company in Brazil, CPFL Energia. The utility has been under pressure recently because of expectations of slow GDP growth in Brazil (just 2% this year) and concerns that the Brazilian government may push to lower electric costs by as much as 10% to curb a further growth slowdown.
I'm looking at things a bit differently. I do see a competitive utility space and possible negative implications from a government reduction in electricity costs. However, over the long term I see Brazil significantly outperforming more industrialized nations, which affords a greater growth opportunity to CPFL. In addition to paying out a remarkably large dividend (which is given out semiannually), CPFL's entire energy lineup is renewable: thermoelectric, hydroelectric, biomass, and wind power plants. With big investments flowing into alternative energy, CPFL Energia is an attractive name that should remain near the top of your watchlist.
Count me among the very few pessimists left on Ariad in spite of the overwhelmingly positive news surrounding its lead drug candidate, ponatinib, for the treatment of chronic myeloid leukemia (CML) and acute lymphoblastic leukemia (ALL).
Phase 2 results of the drug have been very positive, with 54% of all CML patients showing a significant cytogenetic response -- that figure rose to 70% for those who had the T315I mutation. Ariad has already submitted a marketing authorization application in Europe and has been granted an accelerated assessment of the drug. It also has a rolling new drug application with the FDA in the U.S. with the hope of approval and launch by the first quarter of 2013. Ariad is also working on a mid-stage trial in Japan (the third-largest CML market) for patients who have failed treatments with Bristol-Myers Squibb's
But I ask, "Where's the potential upside left in the share price?" Assuming approval of ponatinib, peak sales estimates range all over the place, with most hovering in the $800 million-$1.3 billion range. It's going to take about a decade to reach those figures as well. So again, I wonder who's going to pay around four times sales for projections that are 10 years out? Slam-dunk approvals (as this is being slated) are exactly the type of approvals I tend to avoid as they have the highest levels of risk baked into their expectations. Whether it's launch risk or FDA/EU approval risk, Ariad is looking like a company I'd consider betting against here.
SandRidge Mississippian Trust II
Oil and natural gas royalty interests have received a pretty bad rap recently, with many royalty trusts being put in a negative light with regard to the value of their future payouts versus remaining reserves. SandRidge Mississippian Trust II is a relatively new trust and many of those concerns simply don't apply.
The trust has a pretty standard 20-year reserve lifespan that's spread among a good mixture of oil and natural gas. This means shareholders can relax and not worry too much about having their stock get sacked by falling natural gas prices. More important, the trust has far exceeded anyone's expectations when it comes to distributions, surpassing even its own forecasts. The trust is currently in the process of ramping up production, which should peak in a few years, and ultimately is capable of delivering around 10% in annual dividend yields, in my opinion. That could lead to a remarkably quick payback if those funds are reinvested!
Is my bullishness or bearishness misplaced? Share your thoughts in the comments 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 CPFL Energia to My Watchlist.
- Add Ariad Pharmaceuticals to My Watchlist.
- Add SandRidge Mississippian Trust II to My Watchlist.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He's a total nerd when it comes to making lists. 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 Sandridge Mississippian Trust II and Costco. Motley Fool newsletter services have recommended buying shares of Costco. Try any of our Foolish newsletter services free for 30 days. 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 that believes transparency comes first.