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.
Shares of Intel have been beaten on what seems like a regular basis since it reported its second-quarter results last month. Things got even worse last week following a downgrade from R.W. Baird, which called for weak second-half sales in Asia. But, I'm here to remind investors today that any sizable drop in Intel shares could make for a beautiful long-term buying opportunity for your portfolio or your IRA.
The knock against Intel in recent years has been its supposed lack of innovation. The proliferation of smartphones and tablets has caught Intel, metaphorically speaking, with its pants down. Instead of reaping the rewards of having approximately 85% market share in PCs, it's been forced to spend heavily on innovative new chips for smartphones, tablets, and data center devices.
The good news is that many long-term factors are still working in Intel's favor, even if analysts are mixed on its near-term outlook. For starters, while I like what I'm seeing from the Advanced Micro Devices (NASDAQ:AMD) turnaround, it will, at the earliest, not turn an annual profit until next year. AMD is focused on building its gaming console chips, and in numerous other areas where Intel isn't currently focused. Although the two chipmakers are often viewed as mortal enemies, they've predominantly moved away from much of their direct head-to-head competition, resulting in stabilizing cash flow for both companies.
Second, Intel is perfectly positioned to reap the rewards of its dominant processing market share, even if PC sales continue to slowly decline, by simply cutting processing R&D costs and funneling some of that cash into a very robust 4% yield to investors.
Finally, Intel is innovating, regardless of what Wall Street seems to think. The company's Atom line of processors has a good shot at taking up to 10% of the tablet processing market share by 2015, in my personal estimates, while Intel's own projections have it bringing in 30% of its revenue from cloud-based hardware by the end of the decade. This basic-needs stock is a must have for your Watchlist!
It's been a rough week for a wide variety of retailers, from low-end to high-end. Wal-Mart shares took it on the chin after the company reported a surprise 0.3% comparable-store sales decline for the second quarter, when 0.7% growth was expected. On the higher end, Nordstrom (NYSE:JWN), traditionally a stalwart of success in any economic environment, because it caters to a higher-income customer who often feels little pressure when spending -- shows signs of weakening. Its second-quarter results released earlier this week delivered a respectable 4.4% comparable-store sales growth. This was, however, 2.4% below the 6.8% growth analysts had forecast.
Coach, by the same standards, has struggled to improve U.S. sales in the wake of news that its CEO, Lew Frankfort, who has been instrumental in making Coach a "hip" brand that speaks to multiple income levels, plans to step aside next year. Uncertainty is never the friend of investors.
However, I think Coach shares are quite attractive here following the pummeling they've taken this month, and more than factor in any transitional weakness that may occur from Frankfort's upcoming departure.
For one, I don't think you can underestimate the power of the Coach brand. Consumers have shown incredible resilience when it comes to purchasing brand-name products, even in difficult economic environments. With a product that's generally priced for the middle-to-upper-middle-class consumer, Coach shouldn't have any difficulty moving its product overseas, or even domestically.
Inventory control has also been a strong point for Coach over the long run. Rather than stooping to its peers' level and moving its inventory with discounts, Coach has chosen to preserve the value of its brand by selling its accessories at the marketed price. This instills a sense of brand value with consumers, and will ultimately help it boost profits quicker than its peers on potentially lower volume. At less than 13 times forward earnings, and with a yield of 2.6%, Coach's weakness looks like an intriguing buying opportunity.
Red Robin Gourmet Burgers (NASDAQ:RRGB)
Don't worry short-sellers, I haven't forgotten about you, either! Following its second-quarter results Thursday night, shares of causal burger-focused dining chain Red Robin has been soaring. The reason behind the move is that Red Robin delivered $0.77 in EPS versus expectations of $0.66 on 4.3% growth in comparable-store sales. But, with shares now valued in excess of 25 times earnings, I'm ready to send this stock back to the kitchen as being overdone.
Dissecting Red Robin's report a bit further, there were some disconcerting figures which stuck out. To begin with, while it's good to see Red Robin being able to pass along price increases to its customers, it's equally scary to see that its guest count decreased by 0.7%. Some of that could have to do with decreased marketing, but it could also easily be a reflection of tighter consumer spending, and the fact that its higher prices are driving customers elsewhere.
Another factor worth noting is that full-year comparable-store sales are only expecting to increase by 3%, meaning the second-half of the year, which many businesses have been exclaiming would be better than the first, should weaken for Red Robin. It might be worth mentioning, as well, that revenue for the quarter slightly missed Wall Street's expectations, but by a truly marginal amount (less than 1%).
Valuation is the final factor that would make me get up and leave. With the company valued at a hefty 25 times forward earnings, and demonstrating an organic growth rate of just 3%, I'm extremely worried what might happen when food costs again begin to tick higher. The valuation here just doesn't make sense, and this could be setting up to be an excellent short-sale candidate.
Is my bullishness or bearishness misplaced? Share your thoughts in the comment 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. 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, and recommends, Coach and Intel. It also recommends Red Robin Gourmet Burgers. 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.
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