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. 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.
If you haven't been following the steel industry much, simply pulling a list of the most recent 52-week lows will get you up-to-date in no time. ArcelorMittal, a steel producer and iron ore and coal miner, has all the makings of a company investors would thoroughly dislike right now. It has net debt of $21.9 billion, is dealing with weak steel prices and demand throughout Europe, its largest market, and is struggling under the weight of weak iron ore and coal prices. And yet, I think ArcelorMittal could be ripe for the bottom-fisher willing to take on a little risk.
My reasoning for this is twofold. First, I turn to Alcoa's (NYSE:AA) results last night for an indication of the health of the metals market. While the results aren't anything to write home about, the bottom-line profit was better than expected, and more important, Alcoa stuck by its original forecast calling for 7% aluminum growth worldwide, with strength coming from a multitude of sectors. That bodes well for ArcelorMittal, which is a major steel supplier to the automotive and construction industry.
Second, I'm not certain that we aren't overreacting as investors to the austerity measures we're seeing in Europe. Yes, the automotive industry has been weak, but ArcelorMittal is likely to see big gains in Latin American markets, where construction is still relatively strong. Brazil, for instance, recently recorded a record 3.8 million auto sales, which demonstrates the growth ArcelorMittal could deliver by looking even more rigorously to overseas markets.
I even admit that ArcelorMittal's net debt makes me think twice about owning the stock, but with its share price at eight times forward earnings, I think the worst-case scenario in Europe is already baked in.
Allergan (NYSE: AGN)
I'm sorry, longtime Allergan fans, but it's not Allergan's extensive pipeline that's drawn my attention to the stock, it's the expected decision by the Food and Drug Administration on inhaled migraine medication Levadex by or before this coming Monday.
Levadex, if you recall, was developed by MAP Pharmaceuticals and licensed out to Allergan. The inhaled medication received a complete response letter in late March 2012 not because of the safety or efficacy surrounding the drug -- clinical trials demonstrated more than enough efficacy to merit an approval. Instead, MAP's manufacturing and delivery of the drug is what came under scrutiny. With the company having spent a year now refining its manufacturing and delivery process with the FDA, the assumption would be that MAP has all of its ducks in a row now.
This is particularly intriguing now both to Allergan, which purchased MAP Pharmaceuticals earlier this year for $958 million, and to Nektar Therapeutics (NASDAQ:NKTR), which would gain royalties from the sale of Levadex due to its intellectual property contribution to the making of the drug.
My twist-my-arm opinion is that Levadex is going to gain approval and that it'll be every bit the $500 million success that my Foolish colleague David Williamson talked about last year. Allergan shares have had an amazing run, and they could be just days from heading even higher.
On Thursday last week, F5, a process application delivery provider that helps route information more efficiently for networks, reported preliminary results for the second quarter that weren't in the ballpark. Revenue and adjusted EPS were originally forecast at $370 million to $380 million and $1.21 to $1.24. F5's preliminary guidance calls for $350.2 million and $1.06 to $1.07 in EPS... yuck! F5 blamed weakness in its North American operations (think U.S. government orders) and its European sales, while seeing continued strength elsewhere.
While I'd love to go so far as to say that this represents a buying opportunity -- because we all know that F5 is led by an incredible CEO -- I'd have to say that I'd much rather wait to see what F5 has to say at its conference call with analysts. This would be the third straight quarter that F5 has underperformed and could speak to the overreliance the company has on its North American business.
From a valuation perspective, the company is starting to look attractive, but I'd recommend treading lightly until we know more.
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: