I follow a lot of companies, so the usefulness of a watchlist 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, and I do not 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.
Threshold Pharmaceuticals (NASDAQ:THLD)
Last year was a transformational year for Threshold Pharmaceuticals with the clinical-stage biotechnology company announcing a partnership with Merck KGaA to develop and commercialize cancer-fighting compound TH-302. The deal set Threshold up with $25 million upfront and put it in line to earn up to $525 million in additional development and sales milestones. In addition, Merck KGaA agreed to cover 70% of global worldwide development costs for the drug.
The real excitement around TH-302 is the pathway by which the drug works. You see, tumors can grow so rapidly that certain parts of a tumor can be left in a state of hypoxia (low oxygen) due to insufficient blood-vessel growth. Most targeted cancer therapies don't attack slow-replicating cells that are hypoxic, leaving them immune to most treatment options. TH-302, on the other hand, specifically targets hypoxic cells, leaving normal tissue alone.
Of the 11 ongoing clinical studies for Threshold, 10 of them involve TH-302 as a monotherapy or combination therapy. None are more important than its late-stage trials for soft tissue sarcoma and pancreatic cancer.
In treating pancreatic cancer, TH-302 combined with Eli Lilly's Gemzar to deliver a 41% reduction in risk of disease progression or death while also increasing median progression-free survival by 2.4 months in mid-stage trials. This may not sound like a lot, but the failure rate among pancreatic drugs is monstrously high. Clovis Oncology's lead drug at the time, CO-101, failed to provide a statistical advantage over Gemzar in a mid-stage study in November, while Infinity Pharmaceuticals put saridegib back on the shelf in Jan. 2012 after it, too, noted its drug wouldn't meet its desired outcome in mid-stage trials.
With regard to soft-tissue sarcoma, a 91-patient phase 1/2 trial demonstrated an overall best response of 36% and a median overall survival of 21.5 months.
Threshold has a lot riding on this one particular compound, obviously, but I like what I've seen thus far in the results and feel this recent pullback could be an intriguing investment opportunity.
Marathon Petroleum (NYSE:MPC)
You could say that Marathon Petroleum started a revolution in the integrated oil industry by spinning off from parent Marathon Oil in June 2011. By splitting its higher growth oil and exploration business (Marathon Oil) from its higher dividend income refining business (Marathon Petroleum), Marathon was able to offer investors a better investing choice and more earnings and revenue transparency. In turn, investors responded by sending both companies remarkably higher.
In recent months, though, Marathon Petroleum has slipped and fallen about 20% off its highs. The culprit has been higher and more volatile oil prices, which are pressuring its margins. Conflict in Egypt and Syria have definitely worked against Marathon's bottom-line and has pushed its refining and marketing operations margin from $9.76 per barrel through the first six months of 2012 down to just $6.99 per-barrel through the first six months of this year.
But we have to keep in mind that oil fluctuations are normal and short-term ebbs in refiner margins should be expected. Over the long haul U.S. refiners like Marathon are only going to play a more vital role in processing and marketing finished fuels domestically, especially with a renewed emphasis on domestic sources of fuel production from the Obama administration.
Let's also keep Marathon's valuation in mind here. At just 3.8 times its free-cash flow, Marathon is trading at about a 20% discount to its peers, yet is no more or less exposed than any of them to the rise and fall of crude oil. In other words, either the market is overvaluing Marathon's peers, or as could be the more likely scenario, Marathon has overshot to the downside because of emotional trading.
To me, Marathon's recent 20% dividend hike to $0.42 per quarter serves as notice to shareholders that the company is confident in its ongoing cash-flow generation. At less than eight times forward earnings, I'd suggest ignoring the white noise surrounding refiners and giving this company a closer look.
The Washington Post (NYSE:GHC)
I've always got a little something for short-sellers looking for ideas out there and this week it's cable, broadcasting, and online-education provider Washington Post.
If you recall, the big news sending shares of Washington Post higher recently is the sale of its namesake newspaper, The Washington Post, to Amazon.com's CEO Jeff Bezos for $250 million. The paper itself didn't generate but $200 million to $250 million in annual ad revenue, so its sale is more emotional than anything with Washington Post bringing in around $4 billion in annual revenue.
The real concern I have for Washington Post is its revenue breakdown. The company's cable and broadcasting assets, which comprised close to 30% of its revenue last quarter, are showing steady strength. Subscriber growth and prices are up in its cable-television operations, while broadcasting ad dollars are up modestly. These two operational segment are performing pretty well.
Where the train leaves the tracks is when you find out that its postsecondary education company, Kaplan University, makes up half of its revenue! In its most recent quarter, Kaplan reported yet another student enrollment decline with its weakest link being its domestic higher-education universities, which delivered a 6% decline in revenue in the second-quarter. Online education providers are getting crushed by tougher U.S. regulations with regard to how they market to prospective students and what they promise. It's clearly going to be an ongoing issue for the sector for years to come.
Stepping back, what we have with Washington Post's legacy newspaper, online education, and cable/broadcasting business is a company with stagnant to slightly declining revenue that's padding its EPS with share buybacks. To put it another way, there's no organic growth here, but the company is valued at 25 times next year's earnings. I understand the history behind the name and the excitement behind Bezos gobbling up the namesake newspaper, but this valuation appears to make little sense.
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.
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