2013 Equities To Watch January 3, 2013Posted by Ishmael Chibvuri in Latest Articles!!!.
As a contributor to Seeking Alpha I write articles on a few stocks that I hold, but not all. I am often asked about other equities I am interested in aside from the ones I typically cover. As 2013 has just begun, I thought I would take a moment to offer up some of the equities I keep tabs on.
Sirius XM Satellite Radio (SIRI)
Sirius XM provides satellite radio to consumers mostly through subscriptions tied to cars equipped with a capable receiver. About 65% of new cars manufactured come with a free trial of sorts to the satellite radio service. The company has emerged from near bankruptcy in 2009 to a virtual cash machine in 2012. For 2013 things still look very compelling in the satellite radio space. The company is seeing growth through better new car sales, and after years in that market is establishing a pretty compelling used car market as well.
Mel Karmazin, the CEO of the company for the past several years has stepped down and long time employee James Meyer has stepped in at the helm on an interim basis. Sirius XM has announced an aggressive stock buyback program and during the coming year should come under the control of Liberty Media (LMCA), a company that bailed out Sirius XM in 2009 and now holds just under 50% of the shares.
For the coming year we should see some compelling positives continue to develop with Sirius XM. Revenues should continue to increase, royalty rates are under control, and the company should be ramping up an Internet Radio business that could allow Sirius XM to better tap into the mobile phone and tablet market now dominated by the likes of Pandora (P).
Sirius XM does face a more competitive landscape than in years past, but is also better positioned to take on that challenge in 2013. There will be a point when the growth curve slows, but likely that is still a few years away. This should allow investors to enjoy some additional upside in the equity, especially in 2013.
I anticipate that the company will issue final subscriber numbers for 2012 early in 2013. In addition we should soon hear some guidance numbers for 2013 that could add to the excitement of this equity. It is quite possible that a 25% or more upside can be obtained in 2013. Currently Sirius XM is trading at just below $3.00 per share. The implied gain to $4.00 is by no means out of the question, and depending on guidance as well as the actions of Liberty Media there could be a chance to push the equity even higher during certain points of the year. In my opinion Sirius XM offers investors a better than decent chance of seeing material upside this year.
It is virtually impossible to look at Sirius XM without taking a deep look at Liberty Media. While Liberty Media may not be a household name, the company is involved in some very big, compelling, and recognizable brands. Liberty Media is a force in the business, and with a 50% stake in Sirius XM, the company is poised to see a pretty good 2013 in its own right.
Some of the more recognizable brands associated with Liberty media include Sirius XM, Live Nation, Straz, Encore, True Position, Barnes and Noble, The Atlanta Braves, and many more.
For Liberty Media 2013 is all about Sirius XM. Liberty has turned a $12,500 investment in Sirius XM into a value of over $7 billion in just over three years! The company intends to take control of the thriving satellite radio provider soon, and it is speculated that Liberty will seek to do a tax friendly Reverse Morris Trust with its stake in Sirius XM, spinning it off in an uber-profitable transaction for Liberty as well as Liberty investors. Simply stated, if you are of the belief that Sirius XM will thrive you owe it to yourself to take a serious look at Liberty Media.
Cal-Maine Foods (CALM)
When a company has a product that is in high demand that is a great thing. When that product is a consumable, that is even better. What would you say if I told you that there was a company that controls about 20% of the egg market that has demonstrated stability and pays out nice dividends? Well, Cal-Maine Foods is such a company.
Over the past year CALM has traded as low as $34.50 and as high as $46. Over that same period the company has shelled out an impressive $1.32 in dividends on top of an impressive performance for the equity.
Cal Maine Foods has been a staple in my portfolio for almost 10 years now, and although it is currently trading at 5 year highs, it is worth putting on your radar screen. Eggs are highly consumable, and any company that has its hands in 20% of a market like eggs deserves your attention.
LandStar Systems (LSTR)
LandStar is essentially a trucking broker. If you buy something at a store it is very probable that it was delivered to that store via a long haul over-the-road truck at some point. LandStar is a major player in over the road trucking, distribution, and warehousing.
I have had LandStar in my portfolio in one way or another for about a decade now. It has been a consistent player in the sector and pays out a nice dividend. It is cyclical enough to provide trading opportunities, yet stable and predictable enough to offer security and growth.
Over the past 5 years LandStar has traded as low as $28 and as high as $58. Currently the equity sits at about $52 and has seen about a $6 per share run over the last few months. LandStar is sensitive to the economy, so that provides a level of opportunity if you believe that economic conditions in the United States are poised to recover…or at a minimum have bottomed out. Over the last 6 months LandStar has underperformed vs. the S&P, so some feel that it is setting the stage for a jump.
Arena Pharmaceuticals (ARNA)
Arena is setting the stage for an interesting 2013. This company is on the cusp of transitioning from a more speculative play to a more numbers based play because it is getting ready to launch an anti-obesity drug called Belviq.
It is anticipated that Belviq will launch in Q1 or Q2 of 2013. There has been a lot of speculation that because it will be one of the first anti-obesity prescription drugs on the market in over a decade that it will garner "blockbuster" status.
One of the biggest challenges with this equity is that sometimes retail investors simply get too excited about the prospects. Over exuberance can be a dangerous thing. In fact, it is almost as dangerous as falling in love with an equity.
Despite all of the chatter about this company, there is a compelling opportunity even if the company does only 20% of what the most bullish cheerleaders out there say. This is what keeps me invested in Arena. I can set very good expectations and know that there is a throng of people out there with substantially higher expectations. My expectations provide me with a good profit. If the Arena fans out there are correct, I get stellar performance. If they are wrong, I am not so attached that I need to hold long.
Even setting aside the excitement dynamic, I like what Arena is doing. The potential of the anti-obesity market is huge. Even getting a small percentage of that market could prove very profitable. The company has a novel drug getting ready to launch, and quite a bit more in the pipeline. Arena has developed high quality business relationships with companies like EiSai, and should be able to have an interesting 2013. Arena will be active in 2013 because of a product launch and the shift from highly speculative to an equity based more on performance. Arena competitor Vivus has an anti-obesity drug of its own already on the market, and there is an up-and-comer in Orexigen that has its drug in clinical trials now.
If you are watching Arena then you have to watch Vivus. Vivus is the other company that has an FDA approved prescription treatment for anti-obesity. Vivus launched Qsymia very late in Q3 of 2012. Initial results fell short of street expectations, causing trepidation not only in Vivus, but Arena and Orexigen as well. It is now a "Show-Me" equity. That means that we now need to see the numbers and see the company produce before it can truly be assessed.
Vivus has made several strides since launch. It has also made several headlines that are not so flattering. Many of the positive strides actually help out competitors as much as they do Vivus. Getting insurance companies to cover treatment has been huge. Thus far Vivus has gotten Aetna (AET) and Express Scripts (ESRX) on board and that makes the out of pocket cost for consumers much more bearable. On the down side Vivus got denied for its anti-obesity drug in Europe. This limits the potential and gaining approval is a steep hurdle. Competitor Arena is expecting to get the go-ahead from Europe sometime in the first half of 2013. This means that Arena can establish much bigger markets than Vivus can.
I am not invested in Vivus, but do use it as a measuring stick for Arena. Already, the early results posted by Vivus have served to temper my expectations on Arena. Vivus is helping me as an Arena investor to keep a level head amidst some very high expectations. Vivus does have some great potential as well. After all, the anti-obesity market only has two current players. Vivus has shown some great strides in the sector in the 4 months since launch. If you like investing in Pharma, you need to keep an eye on Vivus.
If you are into anti-obesity you also need to keep tabs on up-and-comer Orexigen. This company is several steps behind Arena and Vivus in getting an anti-obesity drug to the market, but is in trials now and is actually seeking an expedited FDA review.
While some speculate that application to the FDA could be resolved this year, that may be a bit aggressive. Even though it would appear Orexigen is behind the proverbial 8-ball at this point, if the anti-obesity market is as big as many think there is great potential here.
Orexigen could have been had for a couple of bucks early in 2012. Currently it trades at about $5 per share. Those that were in early have seen more than a double already. They are some happy investors.
In my opinion the key to Orexigen’s investment success lies with the performance of Vivus and Arena. If the anti-obesity market proves good in 2013 based on Arena and Vivus then the true potential of Orexigen gets better. If the anti-obesity market is more subdued, then the impact to Orexigen should be obvious.
Orexigen is still a speculative play. There is no guarantee that its drug, Contrave, will pass FDA muster, nor has the true anti-obesity market potential been defined. In my opinion, if you like a little speculation, it may not hurt to give Orexigen a shot. If you do, paying attention to the overall sector is imperative.
SodaStream is a pretty compelling company bordering on the see-saw of whether or not it is a fad or a mainstream product. In my opinion there is a lot to pay attention to here, and keeping a close eye is prudent.
SodaStream is doing heavy marketing and has even booked an ad in the Super Bowl scheduled for February 3rd. There are three distinct facets to the SodaStream business model. The hardware is the actual machine used by the consumer to make Soda beverages at home. The second component is the carbon dioxide cylinder. This is what gives soda its fizz. The third component is syrup. This is what gives soda its flavors. SodaStream makes money on all of these components.
What makes SodaStream compelling is that it is gaining traction. What makes that dangerous is that it is trying to compete in a landscape dominated by industry giants like Coke (COKE) and Pepsi (PEP). In my opinion SodaStream will never see the type of market share that will truly threaten Coke or Pepsi, but being a success does not take much. Beer maker Samuel Adams is quite a success with just 1% of its market.
Even if SodaStream is a fad, there is still opportunity here. Fad products can provide impressive runs in a stock. The trick is getting out in a timely fashion with some profit. Over the past year SodaStream has traded as low as $29 and as high as $47.50. With the current price at about $44 the equity is at the higher end of its range.
SodaStream has increased revenue and income throughout 2012 and it appears that 2013 will see even more impressive numbers. It is a speculative play at these prices, but worth keeping an eye on. If sales in Q4 were good, and the Super Bowl ad gains more traction, we could see some compelling quarters in 2013. In my opinion SodaStream is getting ready to go mainstream, but is not quite there yet. If you want to play this equity pay close attention to the news in the entire sector.
These are just some examples of equities I follow. I also like watching the automotive stocks like Ford (F) as well. With auto sales poised to rise in 2013 I think that Ford is in a great position to see price appreciation. Another equity that I think will see an interesting year in 2013 is Pandora. I think the company has a compelling product but is in a highly competitive sector. Pandora, in my opinion, has some very steep hills to climb in 2013. If the company institutes a fee to help offset music royalty costs it will be interesting to see what happens with the user base.
One last bit of advice. It is a new year. Resolutions are common. As an investor why not make a resolution to set some very specific goals for the equities you are invested in. Revenue targets, profit targets, or product milestones are all great places to start. When investors have specific goals we tend to limit losses, maximize profits, and remove the emotional crutch we all tend to rely on.
Happy New Year, and wishes of investing success in 2013!