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 on 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, nor do I guarantee I’ll take action on the companies being discussed weekly. What I can promise is 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.
Oplink Communications, Inc. (NASDAQ:OPLK)
Shares of optical component providers have been on fire in recent weeks — save for Oplink Communications, which disappointed Wall Street two weeks ago with its third-quarter forecast. In that forecast Oplink guided to $42 million to $45 million in revenue in the third quarter versus Wall Street expectations that had called for $46 million. But rather than running in the other direction from Oplink, I’d consider this a genuinely strong buying opportunity.
One factor to consider is that spending from service providers is bound to trickle down to optical component makers over the next two or three years. AT&T Inc. (NYSE:T) is spending $14 billion on infrastructure upgrades over the next three years and Sprint Nextel Corporation (NYSE:S) is about to dramatically expand its 4G LTE coverage, which should translate into big product orders from fiber-optic component makers like Oplink. Optical component supplier JDS Uniphase Corp (NASDAQ:JDSU) is already seeing some of these benefits, with its operating margin improving from 9.2% to 11.3% in the second quarter.
Another factor to consider that helped JDS Uniphase and should help Oplink is that the uncertainty associated with the fiscal cliff and the U.S. debt ceiling is abating, which is giving service providers better visibility and should allow demand to improve.
Finally, Oplink is a cash cow. The company ended the quarter with $166.7 million in cash ($8.65 per share) and has been actively deploying its cash to repurchase shares. With so much cash on hand and the company consistently profitable, this looks like a long-term winner or even a buyout candidate.
Acura Pharmaceuticals, Inc. (NASDAQ:ACUR)
Now that things have calmed down a bit for Acura Pharmaceuticals, it’s time to give this abuse-resistant medication producer a serious second look.
The company has two primary products, Oxecta and Nexafed. Oxecta was approved in 2011 as an opiate-based painkiller with the company’s proprietary Aversion technology designed to keep people from crushing the drug and either snorting it or injecting it via intravenous injection. It licenses Oxecta out to Pfizer Inc. (NYSE:PFE) and receives royalties ranging from 5% to 25% on the drug. However, as Pfizer notes, the drug is still prone to oral abuse, and thus its potential is limited.