Business Services: A Few Quick Ideas
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The business services industry is a pretty general term, which I like because it lets me look at several different kinds of companies. If it serves others, that's a business services company. So let's take a look at a few potential contenders for a spot in the best portfolio ever.
Quad Graphics (NYSE: QUAD) seems to be doing reasonably well in an under-appreciated business. While I hate the proto-spam I get in my mailbox every so often, I do like how it generates sales to people who aren't online as much as I am (which probably includes most of the human population).
Ever since Quad acquired World Color Press, it's expanded into all sorts of new paper print venues. I like how Quad is trading for .7 times its book value, but I'm not super-enthused about its P/E ratio of 16.38. While I appreciate Quad's 4.9% dividend, the 1.4% profit margins the company carries and the fact that a lot of its printing business is old-fashioned books and magazines gives me pause. While there will probably always be a niche market for some mags and books, I don't see this being a heavy growth driver. And I need profits behind my dividends, so I'll pass.
Almost Big Time
Giant Interactive Group (NYSE: GA) is a good example of a hungry company that has almost made it. I adore how Giant pays a 5.5% dividend because I see it as a great little money machine, and the 55.8% profit margins give me a lot of confidence in the business model. I'm also pretty enthused about how Giant is trading for 6.88 times its earnings and 2.6 times its book value -- not bad for a company where most of its assets are online goods. My only concerns are that Giant may be misrepresenting earnings and that it may also be locked out of the big four economic centers in China. If it can break into one of the more major cities and/or we can find a way to know for sure that its earnings are legit, Giant has my vote as a good company trading at a solid price.
The Nerd of the Group
Fair Isaac (NYSE: FICO) is all about helping other companies decide where their money would be most safely spent. If you're a huge corporation and you need to make 100,000,000 decisions about whom to lend money to, you use one of FICO's products to make the decision (theoretically) simple. The company even puts out an application called Falcon Fraud Manager, which allows companies to detect unusual transactions and determine if there's a fraud taking place. FICO pays a tiny .2% dividend and trades at somewhat unimpressive 16.45 times earnings and 3.1 times book value. But I do appreciate the extreme level of trust most every financial company places in FICO's products, and the 13.6% profit margins are reasonably solid. So if you're looking for a solid company to stash in your portfolio, FICO is a pretty decent bet. I'd like it better if it were trading at a lower price, though.
Outsourcee of the Little Things
If you've worn a uniform, stepped on an entrance mat or held a promotional product of almost any kind, you've probably become acquainted with what Cintas (NASDAQ: CTAS) produces. I like Cintas because they're everywhere, but I also don't like the extreme diversification they're into. They manage documentation, they're into fire protection, they provide safety products and restroom supplies. And everybody knows about Cintas uniforms. Is there anything they don't do?
I don't particularly mind that Cintas trades at 18.06 times its earnings and 2.5 times its book value because the company has a strong net. And the 1.5% dividend also isn't bad. But I'd be willing to bet that Cintas's 7.4% profit margins would be higher if it spun off a few of its more "diverse" (read: off in left field) operations and focused on a core. Any core. I like having diverse employees and working with diverse businesses, but at some point you've got to rein things in or it's going to get crazy.
They're All Good at the Right Price
These are all decent companies. The problem is that I only see Giant as trading at a reasonable price, and that's something I personally look for in an investment. I hate overpaying, and I've done so far too many times. If Cintas or FICO went cheap, I'd be on them in a hot minute. If Quad could show that it was operating in a growing niche instead of just hanging on, I'd be on it just as quickly. But for now, the search for something truly elite goes on.
pongun has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Cintas and Giant Interactive Group. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!