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 that 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.
Research In Motion (NASDAQ:BBRY)
If there was ever a perfect time to consider buying puts, this could be it!
Research In Motion has more than doubled from its lows as its cash burn has been lower than expected and its long-delayed BlackBerry 10 smartphones, which run on a new operating system, are set to make their debut in a matter of weeks. Optimism is high that RIM will be able to do with its BB10 what Nokia (NYSE:NOK) did with the Lumia and bite into an expanding market of nearly insatiable smartphone demand.
Unfortunately, I just don't see that happening and feel RIM could end up losing about half of its value if BB10 sales aren't absolutely phenomenal. A new smartphone should help RIM with a much-needed sales boost, but I figure on that being short-lived as faithful BlackBerry consumers are few and far between. Even within the enterprise space, RIM is beginning to lose its stronghold.
Then there's that little bit about cash burn and profitability. Nokia, for instance, boasts $6.25 billion in net cash as compared to the $2.73 billion RIM boasts. Nokia has multiple other business segments to rely on -- networking and its Navteq mapping technology -- and, including the success it's had with the Lumia thus far, when combined with its restructuring efforts, should be profitable in the upcoming year. RIM, on the other hand, could burn cash as it spends heavily to promote the BB10, has no other businesses to rely on, isn't going to be profitable in the upcoming year, and would have to resort to patent sales if it wanted to raise cash. This has short-sale written all over it!
Arena Pharmaceuticals (NASDAQ:ARNA)
I've thought a few times about taking the dive into Arena because of its potential blockbuster chronic weight management drug, Belviq. Last week, the Committee for Medicinal Products for Human Use, or CHMP, raised concerns about a potential Belviq approval in Europe and could be setting Arena up for the same fate as its competitor, VIVUS (NASDAQ:VVUS): a rejection.
The major concerns for the European panel revolved around tumors that developed in rats during trials, valvulopathy, and psychiatric events. Fool Keith Speights noted that the CHMP requested information on the tumors and valvulopathy in its Day 180 List of issues, but apparently the questions weren't answered to CHMP's satisfaction.
VIVUS' Qsymia was ultimately rejected because of CHMP's concerns and Belviq may be staring down a similar rejection if it can't properly address the panels' concerns. However, Belviq's also shown a relatively good safety profile -- at least from its studies -- that would suggest an ultimate approval in Europe, or at least an approval in the EU prior to Qsymia.
The big question mark in this sector has to do with insurance coverage. Aetna is already on board with VIVUS and Arena, and these two will need more insurers to join to reduce the out-of-pocket costs that patients seem unwilling to pay.
Overall, I'm not ready to pull the trigger on Arena just yet, but a few more drops like what we saw last week and I could be seriously interested. With the company having a solid partner in Eisai, I project Arena to be the leader in anti-obesity sales within a year.
There are few certainties in the market; however, if you throw "insurance" anywhere in your business description, your earnings multiple gets repeatedly beaten back into the single digits.
OK, so perhaps that's a bit presumptuous, but Ebix, an on-demand software and e-commerce solutions provider that allows enterprises to process insurance information, just can't seem to catch a break despite an uptick in its bottom line. To be fair, Ebix went on an acquisition spree over the past year, so much of its growth is due to those acquisitions and not entirely organic.
Still, the prospect for growth is incredible if the company can somehow take advantage of the expected boom in the health care sector next year. Ebix's software seems perfectly tailored for creating the type of marketplace needed for consumers and enterprises to interact in order to create the fair-pricing that the Affordable Care Act hopes to achieve.
Ebix ended the quarter with $31 million in cash and appears ready to continue making purchases to drive growth. As my Foolish colleague Alex Planes points out, acquisitions of this magnitude rarely occur without hiccups, but Ebix is nonetheless an attractive value play worth watching at these levels.
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:
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 recommends Ebix. The Motley Fool owns shares of Ebix. 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.