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 with 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, these aren't concrete buy or sell recommendations, and I don't guarantee I'll take action on the companies being discussed. But I promise 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.
Nuance Communications (NASDAQ:NUAN)
The week and year can't end quickly enough for shareholders of Nuance Communications, the voice and language solutions company best known for Siri on Apple's mobile devices. Yesterday, Nuance reported fourth-quarter results that pretty much met forecasts but offered up a dismal EPS forecast for the coming year of $1.05 to $1.15 when Wall Street had been expecting $1.41, blaming its shift to a subscription-based revenue model for lower near-term sales.
Although there are certainly concerns for Nuance, as its recent earnings history would suggest -- other negatives include the company's poison pill adoption last year, which could be viewed as way to protect management's sizable compensation packages -- I feel there could be long-term value in this business and its subscription-based shift.
First off, keep in mind that Nuance isn't just a company that develops voice recognition solutions for the mobile industry. It could be in line to see critical sales gains in the health care industry as the Obamacare rollout pushes up hospital and clinical costs and adds near-term revenue uncertainty for these businesses. With many health care businesses looking to improve efficiency, Nuance could be a name that's turned to regularly throughout the remainder of the decade.
Another factor to consider: Mobile solutions represent the largest chunk of its revenue, and it has monster partnerships to fall back on, including the aforementioned Apple. While Apple hasn't exactly been lighting up Wall Street recently itself, it also has a predictable history of consistency with its suppliers as long as they remain innovative and price competitive. There are few features of Apple's iPhone that are more identifiable than Siri, which makes it even less likely that Apple would switch away from Nuance anytime soon.
While growth could be bumpy in the coming quarters, a recurring-revenue model should support a stabilization of Nuance's long-term outlook. At less than two times book value and 12 times forward earnings, I believe now is the time to give Nuance a closer look.
Orexigen Therapeutics (NASDAQ: OREX)
Regardless of whether or not you're a fan of the biopharmaceutical business, you have to pay attention to Orexigen's safety study results released earlier this week for chronic weight management drug Contrave.
According to Orexigen's press release, the interim analysis of its Light Study, a roughly 9,800 patient study looking at the long-term effects of the experimental weight-loss drug on patients' cardiovascular system, demonstrated that Contrave did not increase the risk for heart attack or create any other adverse events in patients. This is important because Contrave was rejected by the Food and Drug Administration in 2011 due to cardiovascular safety concerns. This study could provide more than enough impetus for the FDA to now approve Contrave -- especially with two additional anti-obesity drugs, Belviq from Arena Pharmaceuticals (NASDAQ:ARNA) and Qsymia from VIVUS (NASDAQ:VVUS) also approved fairly recently.
What's even more intriguing, though, is the potential Contrave could hold in the EU. The Committee for Medicinal Products for Human Use, which is the European Medicines Agencies advisory panel, has made no qualms about its safety concerns regarding VIVUS Qsiva (the European name for Qsymia) and Arena's Belviq. Qsiva was actually rejected twice if you count its appeal, while Arena was smart and simply pulled its marketing authorization application before it got the official thumbs-down. Orexigen, however, enters having completed a substantial safety study, which it may be able to use to gain approval in Europe and put its peers in the dust.
Admittedly, the launch of anti-obesity drugs has left a lot to be desired, but Orexigen should be a company high up on your watchlist following its Light Study results.
Blue Nile (NASDAQ:NILE)
It could be a bit of a rough retail campaign this year, but you certainly wouldn't know it by the looks of online diamond retailer Blue Nile, which has catapulted to a new 52-week high.
Certain factors have certainly been working in Blue Nile's favor. One is a falling gold price, which has made creating mountings (a relatively new venture for Blue Nile, all things considered) for its diamonds cheaper, allowing it to add more bang to its bottom-line. In addition, diamond prices are about 10% off the recent highs set in February 2012, which gives cost-conscious consumers that extra boost to go out and purchase a diamond.
However, as I've said many times in the past, I remain bearish on Blue Nile's business model and would suggest once again that you consider this as an intriguing short-sale candidate.
Let's return to the theory that this will be a tough Christmas. Although diamond prices are down, which could encourage sales, it may wind up only encouraging lower-end sales which often result in weaker margins for Blue Nile. Second, labor costs certainly haven't fallen, continuing to be a thorn in Blue Nile's side. Finally, but most importantly, diamond buying is a personal and emotional experience that often trumps a simple cost comparison between Blue Nile and a bricks-and-mortar retailer. In other words, jewelry purchases evoke emotions, which simply can't be had from making a purchase online.
Blue Nile's business model will work for certain shoppers, but it's certainly not one I'd value at a premium forward P/E of 44!
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: