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 that 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 you want to get investors' attention these days, all you have to do is say you're keeping an eye on a company that Elon Musk co-founded.
On paper SolarCity looks to be an intriguing concept. The company supplies residential homes and commercial businesses with leased or purchased solar panels that can be used to generate electricity and offset electric costs. It's also a perfect way to appeal to socially conscious business owners and homeowners.
Revenue growth at SolarCity is (pardon the pun) through the roof, and it speaks to the growing interest in solar technology and the potential viability of the business in a residential setting. In its most recent quarterly report, SolarCity announced the addition of 17,664 customers and booked 136 megawatts of electric capacity. The company also boosted its solar panel deployment guidance to a fresh range of 500 MW to 550 MW for the year, up 25 MW on the low and high ends, while introducing a 2015 forecast that could reach as high as 1 gigawatt deployed.
But as with most Elon Musk stories, there's another side to this company. In the first quarter SolarCity reported a much wider loss of $67 million compared to the $26.7 million loss it recorded in the year-ago period. Even though SolarCity blamed its weak results on the weather, what really seems to be at work here is a rapidly expanding company that has given almost no credence to its operating costs. SolarCity admitted in its results that its hiring was largely to blame for higher-than-expected costs, which would send a signal that its own headcount growth is likely to perpetuate its losses for years to come.
According to Wall Street's loss estimates for 2015, over the past three months SolarCity EPS loss expectation has more than quadrupled from a projected loss of $0.90 to a loss of $3.75 as of today! If this estimate proves accurate, this would mean over the next seven quarters that SolarCity could lose in the neighborhood of $500 million-$600 million.
For investors, this heated struggle could hold opportunities for both long-term investors as well as pessimists over the interim. At the moment SolarCity's $5 billion valuation looms large given these losses. But if the company's share price were to dip considerably its niche leasing segment and rapid growth could make it quite the bargain.
GW Pharmaceuticals (NASDAQ:GWPH)
Moving from one exciting innovation to another we have global biopharmaceutical company GW Pharmaceuticals. What makes GW Pharma so unique is its approach to treating its patients. GW focuses on the discovery of cannabinoids from the cannabis plant, and the use of these cannabinoids to alter the biologic functions within our bodies based on a naturally discovered cannabinoid receptor system.
In other words, GW Pharma has figured out a way to use marijuana plants to make regulatory agency-approved therapies. Currently, the company's lead product is in a number of EU countries: Sativex combines two of the most common cannabinoids CBD and THC into an oromucosal spray, which helps treat spasticity caused by multiple sclerosis. Although marijuana is considered a schedule I drug domestically, Sativex is being tested as a breakthrough cancer pain medication in a handful of late-stage trials, which could open the door for the company in the U.S.
In addition to its exciting approach, GW Pharmaceuticals has also drawn positive attention from Wall Street firms like Morgan Stanley, which set a price target of a whopping $103 on the company just weeks ago, and CNBC talk show host Jim Cramer, who on the same day exclaimed that GW Pharma was the best investment opportunity among all marijuana stocks.
But as with SolarCity, there are two sides to the GW coin as well. Thus far Sativex sales have been unimpressive around the globe, with sales falling 14% in 2013 from the previous year to just $3.7 million. That could change if the company finds success in the U.S., but a proposed $1.5 billion valuation by Morgan Stanley seems a bit frothy even if that does come true.
It would appear that a combination of generic availability of short-term spasticity treatments and the possibility that physicians are unsure or unfamiliar with the product given that it's derived from the cannabis plant are making it difficult for GW Pharma to boost sales of Sativex. While its innovation is intriguing, its share price unfortunately isn't, making it a potentially compelling short-sale candidate.
Shareholders of CalAmp may feel like they've been burnt to a crisp over an open fire over the past couple of weeks following the company's fourth-quarter earnings disappointment, but this latest dip could be the buying opportunity both existing shareholders and investors on the outside looking in have been waiting for.
CalAmp's fourth-quarter results clearly didn't meet the mark -- at least according to Wall Street. For the quarter, revenue rose 24% to $59.8 million as adjusted EPS expanded 25% to $0.20. Gross margin also improved 330 basis point to 34.4% from the year-ago quarter. But Wall Street was expecting $0.21 in EPS and $61.5 million in revenue. Furthermore, its upcoming quarter guidance of $56 million-$60 million in sales and $0.17-$0.21 in EPS failed to meet the Street's forecast of $0.23 in EPS and $64.3 million in revenue.
While there's no denying CalAmp missed, the question investors need to ask is whether this miss should have culminated in CalAmp shares losing more than 55% of their value since early March. As for me, I don't believe so.
As my other Foolish colleagues have previously stated, the allure of CalAmp is that it's focused on being a pioneer in the Internet of Things. As devices in our homes become "Internet smart" and capable of operating without human interaction, CalAmp's solutions are hoping to be at the forefront of that change.
Of course, change doesn't happen overnight, as we can see in CalAmp's latest results. But that also doesn't mean CalAmp isn't still growing like wildfire. Year-over-year growth of 24% is nothing to sneeze at, and it's looking quite possible that the company's top-line growth trajectory could have it producing double-digit sales growth for at least the next couple of years. With a forward P/E of just 13, this means CalAmp's PEG ratio could actually fall below one, which would be mighty attractive, in my opinion. It's a volatile name that I would suggest tech-savvy long-term investors dig more deeply into.
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.
The Motley Fool owns shares of, and recommends SolarCity and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.