“How to multiply YOUR wealth with the behind-the-scenes technology Fortune 500 CEOs are quietly riding to record profits…
“Experts call it “the new science of winning.” The Economist says it’s “a golden vein.” FedEx, Capital One, Amazon, and even the Boston Red Sox can’t function without it.
“Now a team of professional opportunity-seekers has uncovered a backdoor way for you to use this technology to secure life-changing investment returns.”
That’s how the latest ad for the Motley Fool’s Stock Advisor newsletter opens — and they then go on to give a long description of the process and promise of “business intelligence,” the data mining and collating process that corporations rely on to understand their customers and their businesses.
Of course, if you’ve been reading the papers you’ve probably already seen that the small(ish) software companies in the “business intelligence” sector are heating up a bit — that’s because there’s some evidence that this will be the next business to see a showdown among the software giants, and whenever that happens they all go on buying sprees to pick up leading small companies who have the customers and the code (that “all” includes IBM, Microsoft, Cisco, Oracle, SAP and all the other cash-rich usual suspects in technology).
The latest deal was IBM’s offer for SPSS, which was just announced as a buyout offer with a 40% premium, so everyone got excited and bid up a few other companies as well … and actually, for a moment I wondered if the Gardner brothers had caught lightning in a bottle and actually teased SPSS just a day before it got this buyout bid, but it looks like they’ve picked other firms (including one that’s now almost exactly the same size as the beefed-up SPSS).
So who are these business intelligence firms that Dave and Tom Gardner are picking for our profitable pleasure? They won’t tell us without a subscription payment, of course, but the Gumshoe has no such restrictions. Let’s see what the clues are …
“‘The Two Titans of Business Intelligence’
“These are the two companies the Gardners are confident will dominate the rapidly growing world of business intelligence — and hand shareholders who get in now some truly life-changing investment returns.
“Granted, there are some very big fish in this relatively small pond — namely Oracle and IBM — but that’s actually a major advantage for these two companies….
“Because they are both relatively small companies it will take far less investment inflow to send their shares soaring through the roof.”
OK, so they’re little … what else?
Here’s some of the detail on Tom Gardner’s pick:
“He first recommended this company to our Stock Advisor community back in April, and it’s already soared 44% since then. But Tom insists that there’s never been a better time to snap up shares.
“… this under-the-radar dynamo turned in a brilliant 2008 — despite the economy.
“Revenues climbed to an all-time high of $1.8 billion, and it generated $400 million in cash from operations. Not to mention, net income climbed to $1.39 per share — up from $1.10 the prior year.
“Best of all, it finished the year with $442 million in the bank — and zero debt.
“This put it in such a strong financial position that it actually repurchased shares — a telltale sign that management is confident about the future, and that it puts shareholder interests first.
“Then, just last month BusinessWeek broke the news that its board had approved another $300 million in share buybacks — in addition to the $250 million it already set aside in February of 2008.
“Frankly, that’s not at all surprising. After all, this company has over 25 years of experience providing a groundbreaking technology that has allowed…
“The China Post to track as many as 800,000 pieces of mail per day
“Coca-Cola to process real-time data on over 16 million retail outlets worldwide
“The Royal Bank of Canada to enjoy direct response marketing response rates as much as 10 to 20 times the industry average.
“Continental Airlines to go from “one of the nation’s worst airlines to among the best in a 10-year span”
Overstock.com to meet its 60% annual growth goal”
This one has to be Teradata (TDC), a company I knew absolutely nothing about prior to this morning — they are a data warehousing and analytics firm, so they’re right in the heart of providing the capability to divine this “business intelligence” that has become the strongest MBA buzzword (buzzphrase?). And they do help all of those customers and dozens of other major companies.
And yes, they did have $442,000 in cash and short term investments as of December — a number that has increased so far this year, they now have about $571,000 … and still no debt. The market cap is around $4 billion, and if you back out their cash on the books they trade at a trailing PE of about 14 (if you use this for comparison, make sure to back the cash out of other firms’ numbers too — many tech companies have significant amounts of net cash on the books, and there’s no guarantee that this cash will do you any good).
Teradata is a fairly big company in this space, though it’s certainly small enough to be gobbled up by Oracle, SAP, Microsoft or IBM or a few other firms if they so desired. Is it the “breakout leader” in business intelligence as the Foolies believe? Well, I’ll certainly acknowledge that I’m sure Tom Gardner knows the company better than I do — and that the stock looks interesting. The shares didn’t bounce at all on the SPSS news, so perhaps folks think they’re a little too big to be an obvious buyout candidate, not sure. There are seven analysts covering TDC, and they think we’ll see earnings of $1.18 this year and $1.37 in 2010, but both of those numbers are lower than the trailing twelve month earnings total … and TDC has handily beaten earnings estimates for at least the past four quarters.
Here’s an interesting analysis from a value stock guy on Seeking Alpha if you’re interested in following up on Teradata.
Let’s see if we can identify the other one, shall we?
The second stock is a Dave Gardner pick, which would usually mean that it’s a “growth” stock, and perhaps even that conventional wisdom on Wall Street considers it to be overvalued, that’s usually David’s stock in trade for the Rule Breakers service that he also runs at the Fool.
“Will this be his next 10,000% gainer?
“Only time will tell, but needless to say, this investor is absolutely thrilled by the potential of this company. And with good reason…
“Despite a brutal year for the economy, revenues at this cutting-edge business intelligence firm clocked in at $296 million in 2008 — up a staggering 106% from 2007 — and a whopping 590% since 2005.
And it doesn’t look like this explosive growth will slow any time soon. In fact, world-renowned market forecasting firm IDC estimates that the market for business intelligence software alone will grow by $2.7 billion over just the next five years.”
Anyone that’s still seeing big growth now is obviously in investors’ crosshairs — so who is this? A few more clues, please:
“Of course, this is due in large part to the fact that thousands of companies are now racing to adopt the technology this company provides. But it’s also because thanks to its unparalleled training and support programs, existing clients remain deeply entrenched and loyal — providing plenty of recurring revenue streams.
“And earlier this month, management announced that it would be opening a new training facility in the heart of Silicon Valley that would help “arm customers with the knowledge and skills” they need to become masters of business intelligence.
“Bottom line, management realizes that this unique approach not only ensures that its clients will succeed, but also that they’ll remain customers for life.
“Bill Macaitis, VP of online marketing for the dominant cloud-computing firm salesforce.com, echoes this sentiment, saying that the services this company provides are, ‘an important part in the continued success of our company.’
“Given what I’ve told you so far, it should come as no surprise that this little-known company’s shares soared as much as 392% after its IPO.
“Does that mean it’s too late to buy this breakout stock?
“Not at all!
“As I mentioned, one of America’s most trusted stock pickers is convinced that right now is the perfect time to get invested in the future of business intelligence — and in this company in particular.”
This company must be Omniture (OMTR) — they did recently open an “Omniture University” training facility in San Francisco, and they do feature that quote from Bill Macaitis in the press release. Omniture is much more of an online analytics company than a traditional data mining firm — they help optimize e-commerce and website conversions and that kind of thing, using their own tools and integrating with other systems and software.
And yes, this is a $1 billion company and they’re fairly expensive based on earnings — the forward PE, if analyst estimates are correct, is about 20 … and that will be impressive, since they haven’t been profitable over the past year. They do have an impressive slew of big name clients in online services and e-commerce, including stubhub,
Overstock.com, Sprint, Macy’s and AccuWeather. The world of online optimization and conversion is still young and most online retailers still have a long way to go in perfecting their design and approach, so I’m sure there’s plenty of growth ahead for the industry — and Omniture looks like they’re well positioned from a quick glance at the services they provide, and the estimates that analysts have for their growth (analysts give them a PEG ratio of about 1, which is nice but relies heavily on future growth assumptions).
There will be heady competition in some of the areas they specialize in both from smaller direct competitors with new technologies, and from bigger firms like Microsoft, Google and Amazon that are trying to place a stranglehold on “cloud computing” and web optimization and analytics. Still, it’s an interesting pick — I don’t think I understand the marketplace well enough, particularly their competitors, to say that I’d be excited to buy this one today, but I will keep it in the back of my mind for future research.
If you’re interested in reading more about this business, and digging into some of the other companies, I can recommend a fascinating blog from a business intelligence consultant — Data Doghouse, which also tracks an index of these kinds of companies.
So there you have it — two firms that help companies store, crunch, organize, mutilate, fold, and extrude their data to improve their marketing and happify their customers … feel like buying into one of these companies, or into one of the huge leaders like IBM or Oracle, or one of the other smaller minnows floating around? Let us know with a comment below. And as always, if you’ve ever subscribed to Stock Advisor or any of the other Motley Fool newsletters, click here to share your thoughts about the service.
Personal Capital is an advertiser with Stock Gumshoe, but Travis also uses it every day for his personal accounts and finds it invaluable. Here's what he said: "They offer a great (and genuinely FREE) 'second opinion' for your financial plan, but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.