If you log in, you will see a new buy. This is a company I visited last summer and have been following for quite some time. For those of you who have been following for over a year, you may recall the quick gain we made on CyberSource. This company is in the same space, but better in my view. If you think e-commerce expansion is a trend that will continue to grow, then you will likely be glad that we are adding this name to the Top 20. I said earlier this year that I need to be a bit more balanced after becoming a bit too "value" oriented - this is a very high quality growth story.
The sell is difficult. We have a couple of stocks that I am almost ready to sell potentially, but I feel like they may have some good short-term upside. I decided to reduce one of our Large-Cap Technology names and to eliminate our Large-Cap Health name (that finally started to work recently). I view our buy as having 44% upside over the next year, while the trim has 38% and the sell is currently at 31%. Both of the stocks we are selling are overbought, while the buy is slightly oversold after some selling following the earnings report last week. I listened to the call and felt more comfortable than ever regarding the company's long-term outlook. I think that the timing is excellent - the reported growth is going to be substantially better than it has been starting next quarter. The monkeys will like this. Allow me to explain...
The company was doing great in 2007 and even through 2008, but it had a 30% customer that was rumored to be going away. In fact, the company announced in October 2009 that its mega-client would be leaving in 2010. This loss has finally cycled through. In the last quarter, the company's sales and earnings were essentially flat, but the underlying sales growth excluding the former client was 20%. I think that people will start to appreciate the growth in the coming quarters. Here's what I am talking about:
This quarter's reported growth rounded to -1%. Before the customer loss, the company was growing smartly. You can see how the maximum reduction took place two quarters ago. The projections for the next four quarters are strongly positive, and I think that quantitative programs will like this (as stupid as this sounds, it's the way things work - don't ever believe in "efficient markets").
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