“The Next Apple? … This Decision Could Change Your Life”

"Back from the Dead" company teased by Forbes Investor

By Travis Johnson, Stock Gumshoe, August 14, 2013

Irregulars Quick Take Paid members get a quick summary of the stocks teased and our thoughts here. Join as a Stock Gumshoe Irregular today (already a member? Log in)

Whenever I’m away from Gumshoe Manor for any length of time, I come back and have to hoe the teaser fields for quite a while just to hack down the hype and promises that crept into our lush mountainside gardens while I traveled — and this week is no different, I leave the field looking lovely, I come back and it’s choked with promises of the next great portfolio doubler, the next Berkshire Hathaway, the photos of the newsletter writers’ yachts and Bentleys …

… and, in the one I pulled out to look at today, the promise, again, of “The Next Apple”

I’m still a little hung up on the last Apple (AAPL), the most talked-about stock in the world at any given moment, and it’s still the top holding in my personal portfolio most of the time (and it’s in the news and rising again lately because Carl Icahn has set his sights on them and talked up an even larger share buyback), but I’m always game to hear about the next world-changing stock. So who is it?

Well, the teaser pitch comes in from a newsletter I’ve never covered before — Forbes Investor, which is helmed by Taesik Yoon and which, according to Mark Hulbert, has had a very good year (up more than 50%) but has trailed the market over the last 3, 5 and 10 years. Yoon also edits Forbes’ Special Situation Survey, which has a much better long-term record — for whatever that’s worth.

And he’d like us to sign up for his newsletter in order to learn about this turnaround stock that’s giving us the “Perfect Time to Buy.” So what is it?

Well, we’re not going to plunk down $99 or $399 (depending on whether your ad had the “on sale” price) for this newsletter to find out — but we’re happy to sift through the clues for you and give you the answer for the low, low price of, well, nothin’. So let’s jump on those clues:

“Much like Apple in the late 1990s, the company I want to tell you about next was headed straight for the corporate Pearly Gates.

“Throughout the 1960s this company was a formidable business legend. Some say it created the single–most successful commercial product in U.S. history. On the strength of this one product alone it built a billion–dollar business.

“It even reached that elusive pinnacle of branding, where its product name turned into a verb (think “Google” or “photoshop!”).

“But, as often happens, management became complacent. They took their eyes off the prize and the company fell badly behind the competition throughout the 1980s and 1990s.”

That will be enough to have a few nimble-minded Gumshoers guessing — and guessing correctly, probably, given the unusual level of intelligence (and attractiveness) among the great Gumshoe readership. But let’s not spoil the fun, what are the rest of the clues?

The promise is that they’re on a comeback:

“Along came the Internet and the digital age…and the writing was on the wall: this one–time corporate darling was a dinosaur on the verge of extinction.

“But (and this is the important part) thanks to the aggressive and very forward–thinking CEO who took over the reins in 2009—ALL THAT HAS CHANGED.

“Today, much like Apple in the early 2000s, this company is about to shock the world with one of the most stunning comebacks in U.S. corporate history.”

The spiel is that the CEO’s big decision to sell services as well as their traditional business equipment will “change your life” — here’s how the ad puts it:

“She decided that instead of simply providing her customers with its one (albeit indispensible) piece of business equipment it would begin to sell business services as well.

“In announcing the news she said, ‘This transformation is earth-shattering for our company.'”

And then we get some clues that make the Thinkolator’s job very easy this time around:

“One of the first things this go–getter CEO did to turn her vision into reality was to complete a bold $6.4 billion acquisition of a key business process outsourcing (BPO) and IT services provider.

“The company:

  • Manages the infrastructure, billing and customer service for many state–run E-ZPass programs
  • Provides the installation, ongoing management, and back–office infrastructure for those unpopular red–light cameras that are popping up in dozens of states nationwide
  • Operates the entire behind–the–scenes infrastructure for the Medicaid program in the state of California.
  • Helps higher education institutions, such as Notre Dame, with everything from enrollment management to loan and HR services
  • Data–mines hospital records at many institutions to detect hospital–acquired infections before they spread, as well as to help streamline their operations
  • Works with cities nationwide to help them adjust transit schedules, the price of parking, and traffic flow patterns in order to become more ‘green.'”

There’s also some more chatter about what this company is pushing forward on in its R&D department — not only new services, but advancements in 3D printing, silver circuit printing, etc.

And Yoon says that this is “The Perfect Time to Buy” because the stock is trading for only 8X current year earnings estimates — Wall Street is not giving them credit for being more than an office equipment company.

So who is it? Yes you guessed right: This is Xerox (XRX)

I own shares of Xerox, and featured them as an Idea of the Month stock for the Irregulars back in March when it was being teased by Tom Dyson (if you’re a paid member, you can see my past notes about Xerox here, I’ve bought it a couple times now). I also owned Xerox too early back in 2010 and sold the shares when they were weak in 2011, before they had really settled in with their dividend increases and stock buybacks that have buttressed the price.

Xerox is a large but not huge company (market cap around $12 billion, plus $7 billion in debt) and is very reasonably priced — it’s up a bit recently so it’s now trading for about 12X trailing earnings and 9X forward earnings, and while they do depend on equipment sales, including new color printers and copiers that continue to become more advanced, they are expected to grow primarily through services. That’s a tough business, with sometimes tight margins as they compete with the likes of IBM and HP and the other big business services and IT services companies, but they do also have a massive global installed base of customers for their printing and imaging systems — including lots of relatively small customers (by IBM standards) that may give them a good base for upselling.

I changed my mind about Xerox and started buying because I like what management is doing — managing the debt well, doing very large buybacks when the stock is priced down around book value (it was below book for a while, it’s not any more), and beginning what I expect to become a consistent string of annual dividend increases. Tom Dyson teased them as the “next IBM,” and that’s the dream — transitioning from the lower-margin part of the printing and copying business and into recurring service contracts that allow them, with a tight eye on costs, to improve margins. It’s far from being a guaranteed success, but they’re pretty early in the turnaround after buying Affiliated Computer Services back in 2009 for $6.4 billion — ACS is where much of the business process outsourcing work comes from, and it’s a stock that I actually considered several years earlier because of their strong position in all those recurring, growing businesses like red light cameras and automated toll lanes. Right now, there’s plenty of opportunity in many different kinds of businesses (including pensions and investing — Xerox just bought a small Canadian pension software company this week), but I think the most compelling growth story among Xerox’s business services divisions is in health care — healthcare is not much more than 10% of their service revenue, but it’s likely to grow quickly as the rolls of insured and the role of government in healthcare both increase. That’s also part of the rationale behind Citigroup’s upgrade of XRX this week that bumped the shares up a few more percent.

I don’t personally expect XRX to shoot out the lights with growth, and I’ve nibbled cautiously at these higher prices but might add more on dips in the future – the company still has plenty of debt (though much of it is tied to leased equipment in the hands of their customers, so it’s not as scary as it might look at first glance) and plenty of challenges to face, but I’m looking for Xerox to be a slow grower and a good dividend-compounding investment for a long time … and you never know, maybe their R&D will go beyond improvements in their core businesses and allow them to commercialize something far more dramatic along the lines of the silver or 3D printing technologies that were teased (they’re pushing forward on flexible printed circuits now, for example). Xerox has certainly been known to create dramatic innovation before — the Xerox PARC research center brought us the computer mouse and the laser printer and ethernet networking, and PARC is now an independently managed subsidiary of Xerox that does both contracted R&D and their own work for future Xerox products and services today.

Sound like your kind of stock? Let us know what you think with a comment below.


Leave a Reply

32 Comments on "“The Next Apple? … This Decision Could Change Your Life”"

avatar

stp479
Member
0
stp479
August 14, 2013 12:18 pm

The pieces are in place for this to become a huge success-even with the nice ytd move.

John
Guest
0
John
August 14, 2013 2:20 pm
Im worried about the recent news about their scanners, apparently while taking a copy they can change numbers and this has been found out by someone who used their scanner on a dimensioned drawing for construction and luckily the person checked and the error was found out. XRX say they have a patch but I havent heard them admit this in public yet to let everyone know. The PARC research unit also spends a lot of money on R&D which is good but they seem to not want to take some of the more promising ideas to market which seems… Read more »
kd1966
Member
1
kd1966
August 14, 2013 12:25 pm

I think even the Stansberry guys have teased this one awhile back; I got in ~8 and TDAmeritrade allows me to use DRIP with this stock, and I’m expecting to hold it long term.

MJ
Guest
0
August 14, 2013 12:29 pm
Yes, looks pretty good. Just checked the YTD chart, not too bad of a run up from plugging. Low price, relative to book and p/e I guess. I’m no expert for sure. But I’m probably going to hold until the overall market corrects or pulls back, which I’m expecting at any time. I’m almost all in cash right now, stopped out of everything In June. Hey Travis, how about a piece on the teasers the PBL and SIA people are doing on options real heavily right now. They are both doing it. PBL wants $900/yr to learn their program. I… Read more »
rjones4427
Irregular
0
rjones4427
August 14, 2013 12:57 pm
Caulker
Guest
0
Caulker
August 14, 2013 1:21 pm

Both XRX and BSX are Palm Beach recos that I, a subscriber, own and have done well with. Also have sold calls and puts on them for additional profits. I only wish I had bought all the P B stocks as they have, in my experience, the best letter out there. Contrast this to Bryan Perry’s Cash Machine where I lose more on the stocks than I get on the dividends.

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada
August 16, 2013 6:01 am

“Palm Beach recos” ????

Kurt
Guest
0
August 19, 2013 7:36 pm

These are PB recommendations.

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada
August 20, 2013 8:17 am

Oh, now I get it. Thanks for clarifying.
RB

John
Guest
0
John
August 14, 2013 1:41 pm

I started buying XRX under $10 a few weeks ago. I received the same ad from Forbes last week and a few minutes of searching I determined it was Xerox. So I picked up a few more shares. I like it long term, as in a few years.

Dean
Guest
0
Dean
August 14, 2013 2:58 pm

I am up 18% on XRX since I took Tom Dyson’s advice on it. I subscribe to PBL and feel it is a good solid letter.

doneil99
Member
0
doneil99
August 14, 2013 3:51 pm

I looked at Xerox months ago but couldn’t figure out its competitive advantage. There is so much competition in the IT services space I passed on buying it. Please advise, how will this company stand up against competition in the near and long term future ?

jonomalley
Member
86
August 15, 2013 2:57 pm
There’s huge money in services, which they’re transitioning more and more into, but also huge amounts of competition. How many of their competitors will have equipment located in the offices of their clients? And to get that equipment in those offices they probably already dealt with and have a relationship with at least some of the people who make technology decisions (perhaps not the higher-ups necessary for bigger service types of contacts- but they’ll already have a good foot in the door to get to the right people) for their company. This along with a well known and fairly well… Read more »
baygreen
Member
32
August 14, 2013 4:45 pm

They could ring out the market with a crying monthly dividend, that wold get the fish swimming faster

Ethan
Guest
0
August 14, 2013 8:19 pm

Great clues to lead up to the big ticker.

a xerox machine. funny you don’t even think of it as a brand but as a specific product.

Ethan

who noze
Guest
0
August 15, 2013 12:22 am

just as anside DWOG declared a7cent dvnd it went from 4cents to 44 cents in a week deep well and gas [[canain sands in alberta

theblindsquirrel
Irregular
105
August 15, 2013 5:17 pm
I think XRX will not only survive but will prosper nicely in the coming years. It’s CEO is not just skilled and competent, she is also a visionary that is moving XRX from a copier company into something much bigger and broader in the office machine and business services areas. The board is showing its willingness to recognize and appreciate the necessity of giving back to shareholders more that promises and plaitudes by means of the new dividend policy – always a sign of confidence and and strength. And as others here have mentioned, if I had to pick out… Read more »
theblindsquirrel
Irregular
105
August 15, 2013 5:20 pm

Sorry, Gumshoers .. I really MUST discipline myself to use a spellcheck before hitting SEND. I’m not as dumb as the spelling in some of my posts might indicate .. really ..

canonfodder
Member
80
canonfodder
August 15, 2013 11:32 pm

Jim, we know that you are not dumb and we value your writings greatly. A typo here and there is not that confusing to us. Just keep cranking out your valuable stuff.
By the way, a spell checker doesn’t solve everything. Today I read the writings of a lady editor who proclaimed that a certain company was pairing down its marketing.

who noze
Guest
0
August 15, 2013 10:03 pm

me too

Myron Martin
Author
200
August 17, 2013 1:06 pm

Easy to make typo’s when tired or rushed but what amazes me is the people such as highly educated reporters and editors who make glaring spelling mistakes. Some people have college educations and have commensurate high profile positions and still have never learned to spell properly. Some of the most frequent are “there for their” too for to, weather for whether and many more to numerous to mention.

canonfodder
Member
80
canonfodder
August 17, 2013 3:06 pm

My parents were teachers. I had then for various classes! OH! The pain of being the teacher’s son! I believe they were extra tough on me to show that they were not favoring their offspring. I survived, but I CERTAINLY had to learn to spell. Mom taught English to my third grade class and English included spelling at that level. If I remember correctly, spelling classes continued through the 6th grade.
By the way, I was in 3rd grade in 1939. Yes, I am older than dirt.
I wonder how much spelling is taught today.

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada
August 18, 2013 11:02 am

I’ve been telling the kiddies for years that “the secret to being smart is to notice small details” (watch Sean Connery in The Name of the Rose for a wonderful example) and to me, spelling is a prime exercise in noticing small details. Kids should be taught spelling if only to give them an exercise in paying close attention to details. Just my opinion.
(I wasn’t even alive in 1939. My first day of school wasn’t until Tuesday, Sept 7 1948).

canonfodder
Member
80
canonfodder
August 18, 2013 1:43 pm
Rusty, I live in New Hampshire, so not that far from your Canada. Your stated opinion is quite correct, in my opinion. You are not older than dirt, but you are creeping up on that condition. I sincerely hope you are in good health and continue in that. I have set my goal for life at the age of 120 so I might at sometime finally learn to invest. Also I want to have time enough to bug a great number of people ! 🙂 Travis, Will you still be the Gumshoe in 2050? I need you to do so… Read more »
canonfodder
Member
80
canonfodder
August 17, 2013 3:09 pm

Look at that! Second sentence typo, “then” for them.

Bob
Guest
0
Bob
August 18, 2013 8:53 am

For the 3D printing fans there is an article on the BBC news today [8/18] titled “Plastic Pasta ; What comes out when 3D home printing goes very bad.”

canonfodder
Member
80
canonfodder
August 18, 2013 1:46 pm

Bob, I tried to find that article about 3D printing but failed. If possible, please give us a full link to the article.

alexm28
Member
1
alexm28
August 19, 2013 8:00 pm

i TRACK AMAVF (SWEEDEN) PINK SHEETS US, DDD. SSYS AND SGLD. i AM TRADING AMAVF BUING AROUND $90 AND SELLING AROUND $96 IT HAS VERY SMALL FLOAT 4.2 M SHARES.
IF YOU KNOW OF ANY OTHER 3D COMPANIES I WOULD LIKE TO KNOW.

deiss
Member
0
deiss
August 19, 2013 12:01 pm
I visited Xerox PARC in the early 1970’s. They were running high end CRT graphics displays with expensive minicomputers that had drop down menus and icons on the screen and using the Smalltalk language. They were applying them to artistic creativity projects for kids and adults (art and music for eg). At around the same time Jobs went there to have a look. I don’t know for sure but I think Gates also visited too around that time. Clearly the PARC projects had a direct and large influence on the future of the PC human interface as soon as the… Read more »
jonomalley
Member
86
August 27, 2013 5:07 pm

Down again to $9.70/share. Going for another dip!

canonfodder
Member
80
canonfodder
August 27, 2013 10:49 pm

Yes, XRX went down. Today it fell 3.3% to close at $9.67, It was not alone in falling.
Dow lost 1.14%, NASDAQ -2.16%, S&P -1.55%, SBOTF -12.06% !, MY PORTFOLIO -3.1%.
For a moment I thought this might be the start of a crash but the market closed, stopping further falls for today. I will be watching rather carefully at the opening tomorrow. I am ready to go to cash.

wpDiscuz