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.
Aegerion Pharmaceuticals (NASDAQ:AEGR)
Insane! That might be the best word to describe the valuation here and the reason I feel investors would be wise to add Aegerion to their Watchlist as a potential short-sale candidate.
On the bright side, Aegerion reported second-quarter sales for Juxtapid -- its pill designed to lower LDL-cholesterol (the bad type) for a rare disease known as homozygous familial hypercholesterolemia – that blew past estimates and forward guidance. The company reported $6.5 million in second-quarter revenue and basically doubled its full-year sales forecast to $30 million to $35 million from a prior range of $15 million to $25 million. The Street had expected just $31.7 million in sales this year. Aegerion's Juxtapid also has a one-up on ease-of-use over Isis Pharmaceuticals (NASDAQ:IONS) and Sanofi's competing HoFH drug, Kynamro, which is given intravenously but was also recently approved by the Food and Drug Administration.
Some of this boost is attributable to Juxtapid's orphan drug pricing which entails $295,000 in costs per year in treatment. Kynamro, by comparison, is priced more than $110,000 lower on an annual basis. Obviously cost isn't deterring physicians from prescribing the drug. But, ultimately we're talking about a single drug with a limited treatment audience here that has a considerably cheaper and similarly effective competitor also floating out there. Even if Aegerion were to hit the high-end of its projections at $35 million in revenue, it would be valued at close to 70 times sales. Even if its revenue doubles next year that only brings its price-to-sales ratio down to 35!
Shareholders continue to bid up a company that's losing money and likely won't turn a profit until well into 2014. Add on competition from Isis and I feel you have all the makings of a fantastic short-sale opportunity here.
Following yesterday's bulldozing of the fertilizer sector it's starting to look like potash companies (a type of fertilizer) are the ones in need of help in the growth department. Mosaic, and many potash players, large and small, were taken for a wild ride on news that Russia's Uralkali is no longer planning to hold back production to keep prices potash prices up and will sell its potash at spot market prices, likely sending potash prices and margins much lower.
The news can be crippling for companies that deal primarily with potash, like Interpid Potash (NYSE:IPI), which generated more than 80% of its gross revenue from potash in the first-quarter ($82.7 million of $99.3 million). Being a smaller company to begin with, Intrepid Potash has less versatility and could really see its margins pinched.
Mosaic, on the other hand, was hammered nearly as hard as Intrepid Potash, but has multiple factors working in its favor. For starters, it received $1.7 billion of its $2.7 billion in net sales in its most recent quarter from phosphates – the remaining $1 billion came from potash. While Mosaic may see some margin contraction in its potash segment, it's not Mosaic's primary revenue generator.
Also, with more diversity and better cash flow comes the ability for Mosaic to be more flexible than its smaller peers. Mosaic has the liberty of adjusting its production mix as needed to maximize margins and reduce expenses. Plus, after yesterday's thumping, shareholders are now receiving a 2.3% yield that doubled in 2013.
Over the long run the need for food and higher crop yield is only increasing which makes fertilizer companies like Mosaic a smart play.
Despite its ascent to a new 52-week high, Staples could have quite a few tricks up its sleeves in the surprise department for short-sellers if they aren't careful.
In recent weeks Staples has been creeping up the list of the S&P 500's most short-sold companies. To some extent I can understand short-sellers' view of the company given its low single-digit growth rates, and the need to close some of its stores in order to reduce expenses. However, there are considerable reasons to believe that Staples could send short-sellers running for the hills over the coming year.
As I've noted previously, the upcoming merger between OfficeMax and Office Depot will create a window of probably two years where the combined company will be closing stores and laying off workers in order to cut expenses. That should be a rapid growth period for Staples as it picks up displaced former customers of both chains and proves itself to be the most stable office supply store in the eyes of consumers.
The other factor at play here is that Staples is focused on taking on Amazon.com head-to-head in the direct-to-consumer office supply sector. Right now Amazon has a pretty steady lead on Staples in this department, but it also has numerous other growth avenues it's focused on. Staples has pretty much laid its intentions out to go after small businesses and consumers via the web-based sales. Improving direct-to-consumer sales could lead to hefty profits for Staples and marks yet another reason why you should be closely watching this turnaround.
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: