SAP AG (SAP)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in SAP AG on June 13, 2007. Here is the stock selection guide we used for the purchase decision.
Sold Getty Images, Inc. (GYI)
SSG and PERT | Google Stocks | Company Website
We sold our position in GYI on August 28, 2007. The price was $31.04. The reason for selling was declining earnings prospects. GYI is facing stiff competition from other sellers of image.
We purchased an initial position in Getty Images on November 22, 2006. Here is the stock selection guide we used for the purchase decision.
Sold Affiliated Computer Svc
Affiliated Computer Services (ACS)
SSG and PERT A (12-26-2005) | Google “Stocks: ACS” | Company Website
We sold Affiliated Computer Systems on November 11, 2006 at $29.74. We had a long term gain of $13. We originally purchased ACS in November 2003.
Rationale for sale: ACS seems unable to move forward. Click here for a SSG. As the chart below shows, it seem it has been unable to grow its revenue and earnings in any significant way over the past 4-5 quarters. It is now mired in an options pricing mess and will have to restate its earnings. ACS failed to fully report its current quarter and instead offered up instead “non-GAAP” (GAAP = generally accepted accounting principles) metrics of performance. Its TTM pre-tax margin (10.5%) is below the industry average (15.8%). Morningstar still rates ACS 4-stars but also rates it F for stewardship.
Sold Marsh & McLennan Cos.
SSG and PERT A Graph | Google “stocks: mmc” | Company Website
We sold Marsh & McClennan on November 11 at $32.01. This gave us a long term capital gain of $143.18. We had originally purchased MMC in November 2004.
Rationale for the sale: MMC has not yet recovered from its myriad of regulatory problems. Click here for a SSG. It has failed to re-establish growth in either revenues or earnings. Return on equity and pretax margins have dipped significantly, with no immediate sign of recovery. It may be a good value stock (Morningstar rates it 4-stars) but it currently fails as a quality growth stock. We have replaced it with GYI and WAG.
Maxim Integ. Prod. (MXIM)
SSG and PERT | Google Stocks | Company Website
Maxim reported earnings for the fiscal year ending June 24, 2006. The company reported revenue growth of 11.2%. However, net income fell (-14.4%)and diluted EPS fell (14.9%) from $1.578 to $1.372. See Maxim’s press release. The expensing of stock based compensation contributed to the poor earnings.
Maxim and Linear Technologies (LLTC) are similar companies with different niches in the semiconducter industry. They had similar results this year, increased revenue growth but declining earnings. LLTC’s EPS did not decline as much as that of MXIM.
Should we sell MXIM? The short answer is no. The company’s fundamentals — the basis on which we buy or hold stocks — still look very good. On Friday, Maxim reported record-high quarterly revenue as bookings. The company has no long term debt. Net profit margins have remained strong. Value Line projects 20% sales growth and 15.5% earnings growth. The analysts consensus for 5-year earnings growth rate is 20%. Morningstar gives Maxim a 5-start rating (meaning it is priced well below fair value), a wide moat, and a stewardship grade of B. Manifest Investing rates its quality 69.
Whenever the earnings of a growth company falter, the price of the stock usually tumbles. Maxim’s stock price is near its three year low even though the company’s fundamentals and business model appear to be intact.
We currently hold 58 shares of Maxim valued at $2,090. It is 4.3% of our portfolio. Our average cost is $35.88 per share. The current share price is $27.94. We have a net loss of $462. (We also have a net loss for Intel, another semiconductor stock.) Revising the stock selection guide for a projected 15% EPS growth, projected average return is 21.5%. At his point, we probably have more to gain than lose by holding Maxim.
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Sold Harley Davidson
Harley-Davidson, Inc. (HDI)
SSG and PERT | Google “Stocks: HDI” |Company Website
We sold Harley Davidson on June 28, 2006. Although a high quality company, HDI is no longer a growth company. Projected average return is under 8%. The proceeds from the sale were invested in other companies in the portfolio with better long term prospects.
Sold Fifth Third Bancorp
FactSet Research Systems, Inc. (FDS)
SSG and PERT A | Google Stocks | Company Website
We sold Fifth Third Bancorp on June 28, 2006. FITB’s performance has been subpar for some time. It has also had a defection of senior management people. The proceeds from the sale have been redeployed to other financial stocks in our portfolio that have brighter prospects.
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Sold Capital One Financial (COF)
We sold COH on June 12, 2007.
Brown & Brown (BRO)
SSG and PERT A Graph | Google “stocks: bro” | Company Website
Brown & Brown remains a high quality growth stock. Currently at $31.25, our stock selection guide has BRO a buy up to $26.40 with a projected average return of 8.3%. BRO pays a 0.8% dividend. Its current price makes it a HOLD. We wouldn’t buy more at this price but we are reluctant to exchange this quality company for another.
The Feb 24, 2006, Value Line comments that Brown & Brown has made solid progress
of late and has bright prospects over the coming 3 to 5 years. VL rates BRO’s financial strength as an “A” and earnings predictability as 90. Morningstar also speaks well of the company and projects revenue growth of 16% while Value Line projects revenue growth of 14%. However, Morningstar only gives BRO 2-stars indicating that the current price is high relative to its fair value calculation.
Investor Advisory Service also follows BRO and notes: “Business remains quite solid at insurance broker Brown & Brown. Fourth quarter EPS increased 14%. Sales grew 21%, with internal revenue growth of 5.2%. CEO J. Hyatt Brown notes that 2005 was the thirteenth consecutive year in which Brown & Brown had earnings growth of at least 15%. Acquisitions are clearly an important part of its growth. The past two years were extremely robust in terms of acquisitions, and the company says that its pipeline of new deals is “a strong as ever.” IAS has as a buy up to 28.
Synovus Fin. Corp. (SNV)
SSG and PERT A (11-12-2005) | Google “stocks: snv” | Company Website
We took an initial position today in SNV. It has a projected average return of 18.7% and a RQR quality rating of 70.1. The director of investor relations spoke at the Better Investing National Conference in Atlanta. Two key points from the presentation were that SNV is well managed and the price of banks have been driven down based on concern about bank profitability due to the increase in long term interest rates. SNV has maintained very solid profitability with an return on assets (a key metric for banks) of about 1.9%. Return on equity has been steady aroud 18%. See Morningstar profitability summary below.
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Business Description. Synovus Financial Corp., a holding company, provides various financial services. It operates in two segments, Financial Services and Transaction Processing Services (TPS).
The Financial Services segment provides commercial banking services, including commercial, financial, agricultural, and real estate loans; retail banking services, including accepting demand and savings deposits; individual, consumer, installment, and mortgage loans; safe deposit services; leasing services; automated banking and fund transfer services; and bank credit card services. It also provides portfolio management services; securities brokerage; trust services; insurance agency services; financial planning services; asset management services; and investment advisory services.
The TPS segment primarily provides electronic payment processing services in the United States, Canada, Mexico, Honduras, Puerto Rico, and Europe. It also provides back-end processing services to support merchant processing and offers other products and services to support its processing services. In addition, the TPS segment provides commercial printing and related services; programming support and assistance with the conversion of card portfolios to TS2; recovery collections, bankruptcy process and legal account management, and skip tracing services; Internet, Intranet, and client/server software solutions for commercial card management programs; targeted loyalty consulting, as well as travel, gift card, and reward programs; gift card processing services to Japanese clients; prepaid card solutions; and sells and leases computer related equipment associated with its electronic payment processing services. As of April 26, 2005, Synovus operated 41 banks and other Synovus’ offices in Georgia, Alabama, South Carolina, Florida, and Tennessee. The company was formed in 1888 and was formerly known as CB&T Bancshares, Inc. It changed its name to Synovus Financial Corp. in 1989. Synovus is headquartered in Columbus, Georgia.