Is There Grow Juice in These Stocks?

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I can't seem to make a plant grow worth a crap lately, but I've been working to grow my portfolio from something other than dividends. While I'll always love getting paid just for owning shares of great companies, sometimes it's okay to play the growth game. So I've been thinking about different ways to get some grow juice flowing, and I can't think of anything more grow-ish than business software.

Businesses always need software to operate, they have large budgets and they can make long commitments even if the software is anything but optimal. So long as there's a good sales pitch, even mediocre software can sell like hotcakes (I'm looking at you, Outlook). Here are a few companies I've found that might have the magical grow juice inside and be on their way to multibagger status.

Acquisitions Can Only Do So Much

Sapient (NASDAQ: SAPE) is on an acquisition spree that seems to know no bounds. While I normally consider that to be a sign of a business that knows it's run out of organic growth opportunities, it also reminds me of a young Microsoft back when it was swallowing up or torpedoing its competition.

I like how Sapient has been New Media Age's Top Interactive Agency in the United Kingdom every year from 2007 to 2012, and I like how its market cap is still a lean and mean $1.4 billion despite swallowing up PG, Nitro Group, Derivatives Consulting Group and a bunch of other companies that have worked to vertically integrate Sapient's design and delivery business model. I also like that Sapient doesn't pay a dividend so it can use all of its capital to grow more. If they can build on their somewhat paltry 6% profit margins and either build or license a more "killer" app than FedTrade Auction, I think this company has a lot of potential.

Jack Henry & Associates (NASDAQ: JKHY) already carries enough market faith to be a part of the S&P 400, but I have some reservations. While JHA does serve thousands of small to mid-size banks, credit unions and a lot of nontraditional niches, I'm concerned about being overly diversified. I like the growth potential for a company with a 15.3% profit margin as much as the next guy, but JHA has been at it since the mid-'70s and hasn't really found something big enough to really grow with in all this time. While I like this company's prospects to keep going, I can't really recommend Jack Henry as a super grower in spite of its track record the past few years as an acquisition machine.

Growing and Aging Aren't the Same Thing

Solera Holdings (NYSE: SLH) also has S&P 400 status as well as essentially being the industry standard for cataloging and recycling auto parts. With the Great Recession having come to a close more than a year ago, the potential boom for recycling automobile components would seem to be at an end, so once again I have to say that this is a company that probably won't be leaping up there. When I saw that the dividend was small and the profit margins were a respectable 13.9% I thought there was potential there, but at over 80 years old I just can't see Solera being a major growth vehicle.

Solid Management Isn't Always Growth

Automatic Data Processing (NASDAQ: ADP) has a strong place in the general outsourcing of American business, and it's also one of only four companies in the U.S. to have a AAA credit rating from Moody's and S&P. So the power to grow through borrowing is certainly there, especially with outsourcing being a great way to keep low-level functions cheap and a lot of businesses looking to save.

I like that ADP spun off Broadridge Financial Solutions a few years ago, shedding a non-core business and giving itself room to expand on its primary roles in outsourcing and payroll processing. I also like how many awards ADP has won since the turn of the century. I don't like that ADP is facing off against the likes of Paychex, which is a monster in payroll processing. While I adore the 12.9% profit margins despite dropping $2 billion in revenue when they gave up Broadridge, I just don't see ADP seriously expanding on its $27.95 billion market cap any time soon.

Conclusion: Fail

I don't normally fail this hard, but this time I did. The answer to whether there's grow juice in these companies is "not likely," though they may still be good places to put your investing dollars if their P/E and price/book ratios come down a bit (they were averaging in the 20 and 3.5 ranges, respectively). I should've known when I saw that there were some S&P companies in here that the most glorious growth days were past.

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 Automatic Data Processing. 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!

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