Roundtable: 1 Company Whose 2013 Will Beat Its 2012
Dec 21st 2012 3:57PM
Updated Dec 21st 2012 4:02PM
In our latest roundtable, we asked a few of our top analysts to "name one company whose 2013 looks to be better than its 2012."
: There's no doubt that Netflix broke a lot of hearts in 2011 and 2012. First there was the Qwikster disaster, then the company decided to push its international expansion plans much faster than investors were comfortable with.
I'm here to tell you that the heartbreak should end in 2013 -- just not right away. The turnaround should come in the second half of next year.
It's all thanks to those expensive overseas markets. Domestic sales currently generate nearly all of Netflix's operating income, with the lone exception of the Canadian market, which turned profitable two quarters ago. It takes a couple of years for each new market to turn the corner. The costs of running the business are almost completely fixed, so it's just a matter of snagging enough subscribers to overcome the hefty content license fees. Once you hit that mark, every new subscriber is purely profitable gravy.
And a veritable ocean of Netflix markets are due to hit that balance point in 2013. South America and the Caribbean come first, and then the British Isles follow right behind. By the end of next year, I expect all of the current markets except for the more recent Scandinavian additions to start adding to the bottom line.
Investors will realize that the model is working in the long run, and the fresh cash will help Netflix accelerate its global expansion plans even faster. It's exciting to see that magic moment coming from several quarters away.
: It may seem like chasing past performance to pick a stock that has already seen a 25% gain over the last 12 months and currently sits just 3% below its 52-week highs. Clearly, Celgene had a big year, but even better things are on the horizon for the biotech giant. Blockbuster multiple myeloma drug Revlimid continues to show strong growth -- 18% in the most recent quarter -- and is currently in three late-stage trials for other blood cancers, potentially boosting sales further.
But Celgene isn't done yet. Abraxane, recently approved for non-small-cell lung cancer and previously as a second-line breast cancer drug, could potentially add metastatic melanoma to that list, along with becoming the best-in-class treatment for pancreatic cancer. Approval for pomalidomide to treat multiple myeloma, as well as positive Phase 3 trial results for psoriatic arthritis drug apremilast, could also drive shares higher in the coming year.
Celgene is a cash flow monster, repeatedly producing more than it reports as net income. And, speaking of the bottom line, management forecasts doubling EPS by 2015. Looking for growth at a reasonable price? Look no further than Celgene. But before anyone invests, I encourage them to download the special premium report on Celgene I co-authored (and enjoy a year of free updates).
: Cliffs Natural Resources has had a horrible 2012, as both of its primary products have gotten crushed by macroeconomic troubles. Coal prices plunged as record-low natural-gas prices that sapped coal demand, while Cliffs' focus on metallurgical coal was only able to mitigate those losses for a while. At the same time, iron ore has also suffered as the Chinese slowdown contributed to a glut of the steelmaking ingredient.
But signs are pointing to a brighter 2013 for Cliffs. China's decision to inject more than $150 billion into infrastructure and construction projects should bolster steel production and boost demand for iron ore and metallurgical coal. With natural-gas prices on the rise, another barrier to higher coal prices could disappear, further supporting Cliffs. Despite plenty of competition, Cliffs should be able to reap at least its fair share of profits from improving conditions and send share prices back upward.
: It's no secret that solar stocks have been crushed this year, and SunPower has been no exception. The stock is down 19% on the year and has fallen 60% since the start of 2011. But the solar industry is reaching a more mature phase right now as unsustainable subsidies around the world are stripped away and sustainable markets start to emerge.
The U.S. market, which saw a cash grant program expire at the beginning of the year, is expected to grow 70% to 3.2 GW this year, and markets like Japan, Saudi Arabia, and India are emerging as powerhouses to replace Germany and Italy. U.S. growth will continue to be driven by residential installations, where SunPower has the market share lead.
As the solar market matures and more companies go bankrupt, there will be a handful of winners, and SunPower is emerging as a top prospect. The company has seen gross margin improve from 7.9% at the end of last year to 12.4% in the most recent quarter. On a non-GAAP basis, the company is even reporting a small profit per share. I think that profit will grow in 2013 and it will be a very different year for SunPower.
: Idenix Pharmaceuticals has had a rough 2012. And it isn't the biotech's fault: Shares of the drugmaker are worth half what they were before Bristol-Myers Squibb announced that it was stopping development of its hepatitis C drug, BMS-986094, due to safety concerns.
Unfortunately, Idenix's IDX184 and a follow-up compound, IDX19368, have a similar enough structure to Bristol-Myers' drug that the Food and Drug Administration decided to put Idenix's drugs on a clinical hold until the biotech could convince the agency that there wouldn't be similar safety issues with its drugs.
Bristol-Myers has been helpful, agreeing to share data that might assist in differentiating the two drugs. And Idenix has reason to believe that its molecule is more specific: 95% of the molecule is taken up by the liver, where the hepatitis C virus resides on the first pass after it's absorbed by the intestine, which should limit toxicity elsewhere.
In November, the company said it would submit its response to the FDA by the end of the year, so a decision on whether to lift the clinical hold and allow trials to continue should come in early 2013. Assuming the FDA is convinced -- and I think that's more likely than not -- Idenix's 2013 should be head and shoulders above its 2012.
: One of the easiest ways to have a better next year is to royally mess up this year. With that in mind, few screwups in 2012 rate worse than Hewlett-Packard's Autonomy acquisition fiasco. Earlier this year, Hewlett-Packard wrote down a whopping $8.8 billion of the $11 billion price tag it paid for the acquisition just last year.
That $8.8 billion shows up as a charge against its fourth-quarter earnings for fiscal year 2012. Hewlett-Packard alleges that the writedown was driven by improperly recognized revenue prior to the acquisition -- essentially, accounting fraud on Autonomy's part. While many wonder whether the magnitude of the alleged fraud was big enough to justify that large a writedown, the one thing that's clear is that it sets an incredibly low bar for the company to clear in 2013.
The article Roundtable: 1 Company Whose 2013 Will Beat Its 2012 originally appeared on Fool.com.This roundtable article was compiled by Anand Chokkavelu, CFA, who has no positions in the stocks mentioned above. The Motley Fool owns shares of Netflix. Motley Fool newsletter services recommend Netflix. 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.
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