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. 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.
This week, I’m devoting my three picks to short sellers looking for high-risk, high-reward ideas.
Mylan Inc. (NASDAQ:MYL)
It’s been a really longtime coming Mylan Inc. (NASDAQ:MYL) shareholders, but you finally have something to cheer about on the asthma front.
Earlier this week, the Food and Drug Administration released a seven-page document outlining what steps generic drugmakers would need to take to bring a generic version of GlaxoSmithKline plc (ADR) (NYSE:GSK)‘s blockbuster asthma treatment, Advair, to market . This is relevant because Advair accounted for close to $8 billion in annual sales last year for GlaxoSmithKline plc (ADR) (NYSE:GSK) — or in another context, 28% of its sales . That represents an enormous market opportunity for generic drug producers and a strikingly big loss for GlaxoSmithKline plc (ADR) (NYSE:GSK) when these drugs do make it to market.
For Mylan Inc. (NASDAQ:MYL) it’s a big boost since it’s viewed as one of the front-runners to bring a generic Advair to market. Given the nature of the tests to be run, it isn’t out of the question that the FDA could be approving a generic version of Advair within three years.
This is what makes Mylan so incredibly attractive. With a portfolio of more than 1,100 generic compounds and only a finite period of protection for branded drugs, Mylan Inc. (NASDAQ:MYL) will always have prospective generics ready to add to its top and bottom line. Furthermore, while margins at generic companies tend to be lower due to the low cost of generic drug pricing, its R&D costs are world’s lower than brand-name biopharmaceuticals. Estimates for the year peg R&D costs at Mylan Inc. (NASDAQ:MYL) of just 6%-7% of revenue. With the company valued at a mere 11 times forward earnings, I feel a hybrid branded and generic drugmaker like Mylan Inc. (NASDAQ:MYL) could make for a smart long-term portfolio play.
Tumi Holdings Inc (NYSE:TUMI)
I know, retail-anything seems like investing suicide right now, given how poorly the retail sector has performed early on in the back-to-school season. However, I feel Tumi Holdings Inc (NYSE:TUMI), a mid-tier travel and business brand, could have more in its back pocket than the market is it giving it credit for.
In the recently reported second-quarter, Tumi delivered a net sales increase of 12.9% to $108.2 million on a 4.6% rise in comparable-store sales. Unfortunately for shareholders, Wall Street had been expecting revenue of approximately $114 million. It’s obvious that growth has slowed a bit for Tumi Holdings Inc (NYSE:TUMI) over the past year, but that’s no reason to go running for the hills just yet.
For one, direct-to-consumer sales rose by 13.3% for the quarter. That may be down modestly from the previous year, but I’d be perfectly glad if my company cranked out double-digit, high-margin sales in its e-commerce segment quarter after quarter.
Second, Tumi is preparing to enter a new wave of expansion that’ll have it opening up stores in better performing markets like the Middle East and Asia by as soon as the fourth-quarter. Emerging markets are the key to Tumi’s rapid growth and the Middle East and Asia have shown little signs of slowing growth.