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.
Triangle Petroleum (NYSEMKT: TPLM)
No one ever said that developing oil assets and meeting Wall Street's targets was easy business, as shareholders of Triangle Petroleum, an oil and gas exploration company in the Bakken Shale and Three Forks region of the Williston Basin, are finding out.
In its most recent quarterly update, which was released four weeks ago, Triangle reported more than quadrupling sales to $88.5 million as its adjusted earnings per share improved to $0.19. Unfortunately, Wall Street was looking for costs to be a bit lower and for Triangle to deliver $0.24 in EPS, causing it to miss estimates by a significant amount and clobbering the stock.
Dig a bit deeper, though, and you'll see plenty of encouraging signs and reasons why this exploration and production company, though small, should be on your watchlist as a possible buy candidate.
First, there's the incredible growth potential that a smaller E&P company can bring to the table that larger oil companies just don't possess. For example, Triangle increased production in barrels of oil equivalents per day by 390% in the third quarter, while also upping its fourth-quarter production guidance to a range of 7,500-8,500 BOE per day from its previously announced projections of 7,000-8,000 BOE per day, all while its expenditures remain the same.
Second, Triangle is still getting most of its infrastructure in place, so investors have to understand that costs are going to be higher in the interim. The company's natural gas facility is expected to come online early this year, and it has an existing backlog of 21 wells. In other words, the fact that the company's costs have tracked anywhere near its estimates is a strong testament to Triangle's future success.
Finally, the Bakken is rich with oil assets, and ultimately oil prices tend to fluctuate less and stay in higher demand than natural gas.
With plenty of proved assets in the ground, a forward P/E of just 10, and the company valued at a mere 44% more than book value, I see plenty of potential for upside.
Acorda Therapeutics (ACOR +0.00%)
Speaking of companies drawing the ire of pessimists for no particular reason, we have Acorda Therapeutics.
Acorda's claim to fame is its FDA-approved drug Ampyra, which is designed to improve walking in patients with multiple sclerosis. The company has two additional FDA approved drugs, but they contribute just peanuts compared to Ampyra's annual revenue. Acorda's third-quarter report disappointed shareholders when the company tightened its full-year forecast for Ampyra sales to a range of $295 million-$305 million from prior guidance of $285 million-$315 million even though organic growth in Ampyra sales rose by 13% through the first nine months of the year. A lack of recent catalysts has also been something of a disappointment.
Yet I see multiple reasons why Acorda could be in for an outstanding run in 2014 and beyond.
For starters, Acorda being the only drug developer that treats walking with MS gives it a unique advantage that could make the company an acquisition target. Last year, Biogen Idec (BIIB 1.64%) ponied up $3.25 billion to buy the remaining worldwide rights to MS drug Tysabri that it did not already own from collaborative partner Elan. Biogen looks intent at ensuring that it remains a dominant force in MS treatments throughout the remainder of the decade and may turn to Acorda to reinforce that image.
Acorda also has upcoming catalysts that bear watching. Sure, the past year or so may have been relatively tame when it comes to clinical data, but the company plans to begin a once-daily phase 2b/3 study involving Ampyra for post-stroke walking deficits in the second quarter. It has also begun enrollment in its second clinical trial for glial growth factor 2 for the treatment of heart failure. In other words, this isn't a static company: It's profitable and it has new therapies being advanced through its pipeline.
If Acorda continues to fall it could be an intriguing buy candidate.
Verso Paper (VRS +0.00%)
Finally, for short-sellers looking for a great idea, have I got a company for you to dig a bit deeper into: Verso Paper.
To say that Verso shares have been on fire would be a brutal understatement, with shares rocketing higher by 574% over just the past two sessions -- and no, that's not a misprint!
The overwhelming optimism that sent Verso shares higher is the announcement that it would acquire rival NewPage Holdings for $1.4 billion. If that name sounds familiar it's because the two companies attempted a merger in 2012 but never got off the ground. The new deal calls for NewPage shareholders to receive $250 million in cash (paid mostly as a special dividend), $650 million in new Verso notes, and the refinancing of $500 million in existing NewPage debt.
Let me run this by you in different terms. Verso, a company that earlier this week was valued at less than $50 million and boasted $1.26 billion in net debt, agreed to buy NewPage for $1.4 billion, assuming $500 million in debt, and agreeing to issue another $650 million in notes! Now we're looking at a coated paper products company (the type that makes paper for magazines) whose net debt has essentially doubled and which still isn't going to be profitable, by my estimates. Furthermore, in order to raise cash for that special dividend you can expect existing shareholders to be diluted.
Even if the transaction makes sense on paper and allows the combination of these two companies to better compete against larger coated paper manufacturers because of lower costs, where exactly is the top-line growth going to come from? In what world are magazine subscriptions soaring?
I suspect once the deal euphoria dies down and investors have time to digest how much debt Verso will be buried under, they'll be running for the exits.
Foolish roundup
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:
- Add Triangle Petroleum to My Watchlist.
- Add Acorda Therapeutics to My Watchlist.
- Add Verso Paper to My Watchlist.
