I follow quite a lot of companies, so the usefulness of a watchlist for 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.
Molina Healthcare (NYSE:MOH)
Despite numerous problems with Obamacare's state and federally run health exchanges launched in October, one insurer that's been piquing my interest is Molina Healthcare.
Molina is a health insurer with a specific focus on low-income and government-sponsored individuals and families. In other words, it's seeking out the guaranteed payday afforded by Medicaid. Although government-sponsored insurance buyers often bring in lower margins than individuals who can afford their own health insurance, simply signing up enough new members can easily make Molina very profitable.
Yesterday, investors clobbered Molina after the company reported disappointing fourth-quarter results. For the quarter, Molina reversed a year-ago profit of $0.55 per share and lost $0.20 per share, $0.15 worse than estimates, despite an 11% increase in total premium revenue for the full-year. What we didn't get to hear, though, was Molina's full-year guidance, which it will release at its investors day tomorrow, Feb. 13.
Molina needs to be on your watchlist, because I have a strong suspicion that with a purported 6.3 million new Medicaid/CHIP enrollees under Obamacare, Molina's membership could be soaring. Remember, Molina can tighten costs and reduce its exposure to unprofitable markets as needed on a year-to-year basis -- but I fully expect it to be cleaning up in California. Obviously, Medicaid-targeting insurers are going to be constrained by the number of states that decided to expand their Medicaid programs, but a vast majority of the states Molina operates in decided to expand. This means Molina's current forward P/E of 16 may wind up being very inexpensive. Keep your eyes peeled for tomorrow's investor commentary.
Kinder Morgan (NYSE:KMI)
I admit that I've been very focused on just how cheap some of the deepwater and shallow-water drillers have become in the Gulf of Mexico. But few energy plays make as much sense as midstream companies, which provide the transportation and storage of oil, natural gas, and natural-gas liquids.
The downside of midstream companies is that they require heavy upfront investments, usually resulting in high debt levels. On the flip side, midstream companies are often set up as master-limited partnerships that provide favorable tax breaks and sizable dividends for investors. The company I'd suggest keeping an eye on as drillers weaken is the nation's largest midstream company, Kinder Morgan.
In January, Kinder Morgan's fourth-quarter results showed a 10% increase in cash available to be paid as dividends, hitting $482 million from $439 million in the comparable quarter last year. As the press release notes, growth was primarily driven by Kinder Morgan Energy Partners (NYSE: KMP), which grew through two separate acquisitions, as well as the incorporation of El Paso Pipeline Partners (NYSE:EPB), which Kinder Morgan acquired two years ago. The company noted a long-term infrastructure investment goal of $14.8 billion between Kinder Morgan Energy Partners and El Paso Pipeline Partners that it believes will drive years of growth for the company and shareholders.
Kinder Morgan also forecast a dividend of $1.72 in 2014, which equates out to a projected yield to investors of better than 5% at its current price. It's clear that midstream investments aren't waning, and the need for storing fossil fuels is only going to rise, making Kinder Morgan a safe energy-sector selection that buy-and-hold investors should be watching.
As always short-sellers, I have an idea for you to add to your watchlist as well -- and this week that candidate is cloud-based software provider Workday.
Let's begin with the basics. Workday is one of the largest human capital management solutions providers around. Its software helps business keep track of payroll, time functions, and employee expenses, and it's designed to make a business more efficient and reduce costs over the long-term. Workday's ultimate goal is to develop a recurring revenue stream that delivers high enterprise retention and dependable earnings quarter-to-quarter.
Workday's revenue growth hasn't been phenomenal -- estimates call for 70% top-line growth in 2014 and another 51% in 2015 -- and its losses aren't shrinking in the least, and the company is still years away from turning a profit. If the company were cash flow positive on a consistent basis I wouldn't argue too much, as it could be following in the footsteps of Amazon.com and simply reinvesting its cash flow -- but that's really not the case here.
Through the first three quarters of fiscal 2013, its total costs and expenses have risen by 55%, with R&D costs up 75% and marketing expenses up 57%. Furthermore, over the past year since the company went public, its share price has doubled, and it's valued at nearly $17 billion, or a frothy 39 times sales. Even utilizing Wall Street's robust growth targets, you'll pay more than 12 times sales for Workday all the way through 2017, and that's if the share price doesn't move from here and the company continues to meet all of its lofty sales goals!
I like the resource management segment and I feel cloud-based applications could continue to see double-digit growth, but as long as Workday is cranking out loss after loss I believe you have to consider being a short-seller at these levels.
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: