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 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.
If a Russian telecom giant falls 18% over a three-day period, does it make a sound?
I'd say so, as shareholders of VimpelCom are sobbing openly this week about the company's announcement that it would slash its dividend almost entirely (to just $0.035 per share annually) after it had committed to an $0.80-per-share annual payout as recently as November. VimpelCom said the cut was necessary in order to pay down its $24.1 billion in net debt collected in recent years from an acquisition spree.
On one hand, paying down debt makes a lot of sense, as the current debt level makes it difficult for VimpelCom to upgrade its infrastructure or orchestrate any further deals. Current investors may be disappointed with the move, but it's in their best interest over the long term.
On the other hand, I can completely understand why investors are miffed, given that VimpleCom was on pace to pay out a yield of nearly 8% in 2014. That dividend was a primary reason to own the stock and a stabilizing force that kept buy-and-hold investors attached. Without that dividend, shares are likely to be more volatile, with traders moving in and out on a regular basis.
Overall, though, the company actually offers a lot of promise once it can roll out its next-generation wireless technology. Although Russia's cellphone market is saturated, much of it is still running on older wireless technology -- 3G, for example. Once newer 4G and 4G LTE begin to hit VimpelCom's targeted markets, it could see a flurry of new subscribers that could push the company well past 250 million.
Given the intriguing prospect of lower debt levels and VimpelCom's low valuation of eight times forward earnings, I'd strongly suggest giving this foreign telecom giant a longer look.
Speaking of companies that have been absolutely shell-shocked over the past week, lease-to-own retailer Rent-A-Center lost 22% yesterday after the company delivered dismal fourth-quarter results after the bell on Monday.
According to Rent-A-Center's report, the company's core customer is "under severe economic pressure and an intensified promotional environment." In other words, Rent-A-Center has had to cut prices and promote heavily just to stay at par for the course. The end result was a minimal 1.5% increase in revenue for the quarter and earnings per share of just $0.25, down considerably from the $0.80 reported in the year-ago quarter and well below the $0.75 expected by Wall Street.
Despite what can only be described as a calamitous quarter, Rent-A-Center is on my watchlist now following yesterday's tumble for several reasons -- the primary reason being that long-term lending rates are more likely to rise than fall from where they are now, which is more amenable to leasing, rather than purchasing furniture or electronics at a higher interest rate on a credit card.
Another factor that works in Rent-A-Center's favor is a rise in the number of part-time workers in the U.S. as opposed to full-time workers. Part-time workers will find it harder to make ends meet, which plays right into the lower- and middle-income target group on which Rent-A-Center is focused.
Finally, it's a valuation play that simply makes sense. Rent-A-Center still forecasts same-store sales growth of 3% to 5.5% in 2014 and EPS of $2.30 to $2.50 (compared to $2.32 in 2013). Long story short, we're looking at top-line growth in the middle single-digits, a forward P/E of 10, and long-term lending rates that should slowly work in Rent-A-Center's favor. That, to me, is a recipe for success!
Every week, we'll look at one short-sale-worthy watchlist stock, and this week's honor goes to struggling smartphone-maker BlackBerry.
BlackBerry shares have rallied over the past two months following an update to its BlackBerry operating system -- which consumers largely consider inferior to Apple's iOS or Google's Android -- as well as short-covering for one of the market's most heavily short-sold companies. The problem with short-covering rallies is that they're often (my apologies) short-lived.
In this case, BlackBerry is staring down an enormous turnaround effort that could see its revenue eroded by another 60% or more over the next two years and won't see the company get anywhere near a profit, based on current Street projections, for at least three to four more years. Furthermore, many of BlackBerry's corporate customers -- which have been its only saving grace -- are beginning to make the switch to Apple-based products.
In the third quarter BlackBerry recognized revenue on just 1.9 million smartphones, compared to 3.7 million smartphones in the year-ago quarter, as net loss rose by $106 million to $0.67 per share. Although BlackBerry ended the quarter with $3.2 billion in cash and investments, my guesstimation has the company burning through $600 million to $800 million annually in an effort to slim down and research smartphones that will sell (i.e., its physical keyboards).
Ultimately, I view BlackBerry as a company that will simply struggle to survive moving forward, and certainly not a company that has earned a near double from its 52-week lows. Once the day-trading winds down, cooler heads should prevail and push BlackBerry notably lower than where it is now.
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:
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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