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.
Pfizer (PFE 0.47%)
For those of you out there looking for dividend income, you're likely going to cheer the notion of adding global pharmaceutical giant Pfizer to your watchlist. On the contrary, those of you who consider yourselves "growth seekers" have probably already begun to yawn. Well, I have news for you growth-seeking investors -- Pfizer is on the precipice of a potential upside surge in revenue, and it all starts with a duo of supplemental new drug applications submitted by it and partner Bristol-Myers Squibb (BMY 0.03%) for next-generation blood-thinner Eliquis.
In late 2012, the Food and Drug Administration approved Eliquis as an anti-clotting agent to reduce the risk of stroke and systemic embolisms in patients with atrial fibrillation not caused by a heart valve problem. It was a key win for Pfizer and Bristol-Myers and it cleared a path for a number of other broad applications.
By March 15, Pfizer and Bristol-Myers will go before the FDA again with a supplemental new drug application (sNDA) for Eliquis as a treatment for prophylaxis of deep-vein thrombosis (DVT), which can lead to deadly pulmonary embolisms, in patients who have undergone knee or hip replacement surgery. The data for these studies was pooled from nearly 12,000 patients tested across three studies (two for knee replacements, and one for hip replacement) which measured the safety and efficacy of Eliquis. Both companies have this designation already approved in the EU.
In addition to DVT as it relates to hip and knee replacement surgery, the FDA also accepted an sNDA for Eliquis as a therapy for recurrent DVT and pulmonary embolisms, which could give it an additional 900,000 patients to target each year within the U.S.
Although sales of Eliquis haven't been as stellar so far as some analysts on Wall Street would like, it still has blockbuster potential, with peak sales ranging anywhere from $3 billion to $5 billion. An approval from the FDA would go a long way to strengthening its marketability and should immediately help lift sales of the drug. Things are once again about to get exciting for Pfizer, and I suggest investors take notice.
Midstates Petroleum (NYSE: MPO)
Now for those of you who are into higher-risk, higher-reward companies, let me introduce you to Midstates Petroleum, a small-cap driller operating in the Mississippi Lime, Anadarko Basin, and Gulf Coast region.
Midstates has had a rough trailing year for a number of reasons. First among those is the fact that it's spending hundreds of millions to drill exploratory wells and get new wells up and running in its Mississippi Lime and Anadarko properties. These costs are weighing down Midstates' bottom-line and causing some investors to get awfully worried considering that the company has $1.6 billion in debt and just $25 million in cash as of the most recent quarter.
We know this is a concern of management's as well, because the company's production and guidance update in late January noted that it's "considering various strategic options that would improve its financial flexibility and provide additional cushion to its balance sheet; this may include sales of assets, possible joint-ventures or farm-outs on its properties. Discussions are currently under way with a variety of interested third parties." To boot, the midpoint of its barrels of oil equivalent per day guidance for fiscal 2014 of 34,500 represents only 44% growth from fiscal 2013, when the Street had projected production growth of 50% or greater.
What we have here, I believe, is the potential for rapid upside or downside over the next three years. Either Midstates' debt is going to get the better of the company and it'll need to heavily pare back its capital expenditures and sell off its assets, or it'll forge ahead with its existing plans or form a joint-venture in some of its higher production regions and pull through with flying colors.
The rate of production growth demonstrates that there are clearly impressive assets sitting in the Mississippi Lime and Anadarko Basin -- the question is merely whether or not Midstates can build enough wells to generate consistent profits to pay down its debt before going tilt. I believe the answer is that it can succeed as long as oil prices remain above $80/barrel and the company continues to discover and recover oil and natural gas liquid-rich assets. It certainly won't be easy for Midstates Petroleum, but it's a name I'd advise more aggressive investors add to their watchlist.
Yelp (YELP 0.37%)
As with every watchlist Wednesday we end with a company that short-sellers might be wise to keep their eyes on. This week that company is business review platform Yelp.
Like Facebook and a number of other great social-media platforms, Yelp is seeing its number of active users balloon. For the fourth-quarter, Yelp's cumulative reviews grew 47% to approximately 53 million, its revenue surged 72% to $70.7 million, and its net loss shrunk by 60% to just $0.03 per share.
But therein lies the rub. Despite a run which has taken Yelp from just $22 to very near $100 in a year, the company is still losing money. Sure, it's made progress by expanding its revenue capabilities to include the Yelp Platform for businesses, allowing consumers to seamlessly go from Yelp to ordering food in a click, as well as pushing its website overseas into two dozen total countries now. However, when all is said and done Yelp is nothing more than a glorified advertising company.
It has improved beyond 100% reliance on ads, but Yelp is still very much reliant on advertising to grow its business. Advertising revenue tends to ebb and flow with the natural cycle of the economy, and the prior two recessions absolutely hammered ad-driven businesses. In fact, most ad-driven tech companies didn't make it out of the dot-com bubble.
Finally, it's a matter of valuation. Yelp, even if it does hit Wall Street's EPS targets in fiscal 2015, is trading at more than 250 times forward earnings, close to 29 times sales, almost 14 times book, and has missed earnings estimates in two of the past four quarters. That's not the mark of an intriguing buy if you ask me, and it presents all the more reason to consider Yelp as a possible short-sale candidate.
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 Pfizer to My Watchlist.
- Add Midstates Petroleum to My Watchlist.
- Add Yelp to My Watchlist.