T-Mobile's MetroPCS announced that it will implement a solution provided by Amdocs (DOX -1.27%) to provide private-cloud online payments. Amdocs is one of many IT Services companies that provides clients with data management solutions and consulting. However, Amdocs differentiates itself by providing consistent results for its customers, and its stock prices reflect the superior quality produced.
MetroPCS's announcement is a relatively small achievement within the broader IT Services industry, an industry that continues to rapidly grow and expand. The reasoning behind the growth is rather apparent: every single company that has data needs it managed.
Selection of key holdings
Amdocs reported $3.3 billion of revenue in 2013, collected from communications, media, and entertainment data management. In addition to Amdocs, Computer Sciences Corporation (CSC) and Cognizant Technology Solutions (CTSH -1.13%) also provide consistent results for their clients. Together, the three account for about 5% of IT Services' total market share.
These three companies were hand selected -- not because they are the largest, have the highest returns, or generate the most revenue -- but because their business practices have proved sustainable. They both have a few things in common: continued steady growth, superior quality, multi-billion dollar individual market capitalization, and the non-developing economies of their primary business countries. These shared traits effectively predict a steady long-term gain and make the investments less of a risk.
The catch-all data management industry
Data management companies support many different types of industry, ranging from software to textiles. At the most basic level, every business has data. Data is defined as "facts or information used usually to calculate, analyze, or plan something."This incredibly broad definition encompasses employee directories, office file systems, back up documents, and much more.
For an infant business, there would likely not be enough data to warrant the use of an IT Services company, but minimal growth can quickly cause the amount of data to exponentially increase, making it hard or even impossible for the business to continue managing itself. The responsibility then shifts onto a data management company like Amdocs, Computer Sciences Corporation, or Cognizant Technology Solutions to keep everything in order. This can be an immensely costly solution for the business, but an incredibly profitable endeavor for the management company.
What it boils down to
The consumer expectation for excellence drives the IT Services industry. A business that doesn't manage its data properly will quickly erode its reputation until there is nothing left. Similarly, if an IT Services company doesn't do its job, another more reliable company is always ready to step up and prove itself. As with every industry, investors must be careful when selecting holdings. However, as long as clients don't waver from their expectation of perfection, Amdocs, Computer Science Corporation, and Cognizant Technology Solutions will not have a problem continuing to produce results.
