With an aging population and climbing drug prices, pharmaceutical companies seem like they should be a mainstay for everyone's portfolio. But profits can quickly turn to peril, as we saw last week when Merck
In today's Motley Fool Take:
- How to Profit From Deadbeats
- Wanted: Foolish Writers
- Siebel's Not Worth the Risk
- Discussion Board of the Day: Teachers
- A Worthy Telecom From Afar
- Quote of Note
- More on Fool.com Today
How to Profit From Deadbeats
While Hidden Gems standouts such as Faro Technologies
Rex Moore's stealth success story, Portfolio Recovery Associates
"People are idiots," she said, perusing yet another article about American consumer debt, and she promptly added a position in PRAA to her IRA.
That turned out to be a good move: The stock has appreciated about 17% since June. And Portfolio Recovery is up another 10% this morning on news of an acquisition. The firm will dole out $14 million in a cash and stock deal to welcome IGS Nevada to the fold. The release describes IGS as an "asset location" company. The phone book calls it a private investigation firm. You say "potato." I say "spud."
IGS's main business is described as tracing deadbeats in the prime and subprime auto lending market. Its management will remain and continue to pilot the firm.
The benefits to Portfolio Recovery look to be twofold. First, management is looking for an earnings trickle-down of $0.13-0.17 per share from the acquisition for fiscal 2005. Perhaps more importantly, the ability to find debt-skippers of all kinds means this could be exactly the kind of synergistic enterprise that would help Portfolio Recovery improve where it counts: increasing its collections.
If management's predictions come true, the flat $0.15 per share would pay for the acquisition in about six years. And it leaves the firm with $30 million in cash on the balance sheet. While today's enthusiasm looks justified, investors should tune in to the conference call later this month to get a better picture of exactly what this purchase will mean.
For related Foolishness:
Seth Jayson likes to keep his debt low and out of the public marketplace. At the time of publication, he had long positions in Portfolio Recovery and Faro Technologies. View his stock holdings and Fool profile here . Fool rules are here .
Wanted: Foolish Writers
Do you read the Fool's content and say to yourself, "I could have written that!" Do you post thoughtful arguments on our discussion boards? Do you have an opinion on everything from Amazon.com to Wal-Mart? Then we're looking for you. We're seeking the best and brightest minds out there to contribute to Fool.com. We're taking applications for both full-time positions and freelance Fools. Visit jobs.fool.com, and check out the listings under Editorial and Writing.
Siebel's Not Worth the Risk
The company's revenue can be viewed as a pie split into three pieces of roughly equal size. License revenue (new sales) will be up 10% over the second quarter. Maintenance revenue will be up 3%, and services will gain 1%. Overall, that adds up to a 5% sales increase.
What should concern shareholders are the operating margins. Although the company sees them possibly increasing to 8.5% (including charges), they still lag the 32% margins at Oracle
Still, the news and the uptick in the stock is welcome relief to shareholders. The stock has lost over a quarter of its value during the last 52 weeks and is down 42% (even after today's rise) from the high it set in January.
One factor that will cap the stock price will be competitive pressures, although Oracle's proposed purchase of PeopleSoft
Siebel does have one significant advantage. It has no debt and $2.15 billion ($4.20 a share) in cash. For a $9.50 a share stock, that is a big featherbed of green.
Siebel is not cheap. It is selling for 37 times analyst estimates for the next fiscal year. When you can buy Oracle and Microsoft
Fool contributor and IT consultant W.D. Crotty does not own stock in any of the companies mentioned.
Discussion Board of the Day: Teachers
What do you think of the for-profit schools? Are you an educator? What issues matter most to you in the classroom? Will personal finance ever be taught properly in the school system? All this and more in the Teachers discussion board. Only on Fool.com.
A Worthy Telecom From Afar
It's not every day I'm willing to take a look at a telecom company. It's an industry with pretty poor dynamics, and the antics of Qwest
Last week, while running one of my favorite screens for value and income, I came across a telecom that pays a hefty dividend and for a number of reasons struck me as unique. You might say I've even had a bit of a change of heart.
Before delving into some of the unique aspects of Taiwan's Chunghwa Telecom
If you're already inclined to research Chunghwa further, you should know up front that the company's largest and controlling shareholder is the Ministry of Transportation & Communications (MOTC). In other words, Chunghwa is majority-owned by the state. To a certain extent, this limits Chunghwa's ability to react quickly in a competitive environment, but given the recent history of the telecom industry, this is not necessarily a bad thing.
In addition, the company bylaws preclude issuing additional shares. Let me say that again just to make sure nobody misses it. Chunghwa is not allowed to dilute your ownership. Hallelujah!
Now, before you send me email about how I'm just another anti-stock-option monger, understand that I'm not against stock options in theory. I'm just not thrilled with how they're accounted for. Investors in Cisco
Still, there is one thing about Chunghwa that I like even more than the lack of dilution. It's the requirement that above and beyond certain requirements -- such as legal reserves and debt repayment -- the company must return excess capital to shareholders. Hence a beefy dividend yield that exceeds 7% at today's prices. Income investors will no doubt find that intriguing.
With year-over-year revenue growth of just 2%, it's not likely that Chunghwa will be turning up in David Gardner's high-growth Motley Fool Rule Breakers. However, Chunghwa is doing a great job transitioning away from land lines and long distance service (cash cows) and toward growth areas such as wireless and data. All things considered, I'm hard-pressed to find a more attractive opportunity in the world of telecom.
For related Fool articles, check out:
Fool contributor Nathan Parmelee owns shares of Qualcomm but none of the other companies mentioned.
Quote of Note
"There's a fine line between genius and insanity. I have erased this line." -- Oscar Levant
More on Fool.com Today
An old-school valuation tool paves a path to market-beating returns, Chuck Saletta says in A Valuation Classic.... Would you pay $4 for something that, at best, is worth a dime? Concord Communications shareholders would, Bill Mann says in Taking Advantage of the Terminally Stupid.
In other news:
For a list of all our stories from today, see our Today's Headlines page.