Question:
I own Accenture. It’s been all over the map in the last few months–$74 in December, $84 in January. I was thinking of trading this one in for Huron Consulting Group. I know Accenture is bigger, but it seems like Huron has more room to grow.
Answer:
Both Accenture, PLC (NYSE: ACN) and Huron Consulting Group (NASDAQ: HURN) operate as technology consulting firms. Size is a big differentiator, as Accenture is almost 35 times larger, which gives them significant benefits. However, Huron could grow faster than Accenture. They are also much more likely to be purchased by a bigger company. Don’t forget International Business Machines (NYSE: IBM) operates in this space too.
Think about this before you make the swap: Huron earnings have grown at 10.08% annually in the past five years, while Accenture has grown earnings by 11.5% annually over the same period. Both are expected to grow between 11.5% and 12% over the next business cycle. The premium you will have to pay for Huron growth doesn’t seem worth changing. Huron has a price-to-earnings-to-growth ratio of 1.86 versus 1.49 for Accenture.
IBM, which we hold, is expected to grow earnings by 8.73% over the next business cycle, and has grown 12.32% in the past five years. IBM has a PEG ratio of 1.1, which makes them the best priced for expected growth among the three companies with more diversification in their operations. Additionally, IBM and Accenture meet our criteria for financial strength and safety, Huron does not.
Question:
My cousin works for Weyerhaeuser. I was thinking of adding this one to my portfolio for the dividend. What do you think?
Answer:
Weyerhaeuser Co. (NYSE: WY) is a REIT, and is one of the largest owners of timberlands. The company is involved in the growing and harvesting of timber as well as the production, distribution and sale of wood and paper products. They currently manage more than 10 million acres of forest, own six million acres and have long-term licenses on 13.9 million acres. The company operates in 11 countries and derives 30% of sales from international markets.
On November 4th, it was announced that Tri Pointe Homes Inc. was spun off from Weyerhaeuser, and is buying Weyerhaeuser’s homebuilding division in a $2.7 billion deal that will give Tri Pointe access to developed land in key markets including California and Texas.
Weyerhaeuser does not meet our criteria for investment. The company is expected to grow earnings at just 5.5% and has a price-to-earnings ratio of 26.15, and a PEG ratio of 4.75. Because 47% of sales come from a segment which supplies wood products for residential construction, the company will continue to be heavily reliant on the housing market even after selling off their home building business. We do not recommend you buy this stock.
Question:
My broker suggested Ventas, Inc. and Teradata Corp. I wanted to get your opinion on these two picks.
Answer:
Only one of these companies meet our strict financial strength criteria for investment and that would be Teradata Corp. (NYSE: TDC). Teradata is one of the leading enterprise data warehousing companies, offering analytics, hardware, software, and consulting services. Teradata’s data warehousing products help businesses identify correlations, or patterns, in their data. For example, the software can help companies parse through sales transaction data and help them improve their operations or manage their inventories.
Data, data management, and running lean businesses is becoming more essential in the highly competitive global marketplace, particularly with such cheap labor available in emerging markets from Southeast Asia to Latin America to Eastern Europe. That said, you would think these shares had plenty of momentum behind them, but that just hasn’t been the case, with shares about 20% lower in the last 12 months.
As a result, you can purchase shares of a good company in a good industry at a cheaper price. You may also want to consider Oracle Corp. (NYSE: ORCL), IBM, or from a data storage perspective, even EMC Corp (NYSE: EMC), all of which we recommend.
Regarding Ventas, Inc. (NYSE: VTR), it is a real estate investment trust, i.e. a REIT, specializing in senior housing and healthcare properties. With the baby boomers aging and hitting retirement age, but more importantly, the population living longer than ever, demographics are clearly favoring Ventas’ business.
The company has seen healthy occupancy levels and solid rental rates, which has helped boost operating income and pushed funds from operations to record levels. In fact, the company just raised its dividend about 8% and the shares now yield close to 5%. All-in-all, you could do worse than an investment in Ventas.
Question:
I’ve been looking at ABB Limited. I’d like to get your opinions on it.
Answer:
ABB Limited (NYSE: ABB) is a Swiss company that operates in the power systems, robotics and automation industries. The company has operations in 100 countries. The company does not meet our investment criteria based on financial strength and safety. Overall, the stock is nothing to rave about, as it is a relatively boring Industrial company with utility-like growth prospects in the long term. It has a PEG ratio of 1.61, and offers a 3.13% dividend yield, but has relatively slow dividend growth. It is priced high according to its price-to-earnings ratio, but it is in line with five year price-to-book and price-to-sales ratios. While the company has an attractive return on equity, we recommend avoiding this stock.
At Henssler Financial we believe you should Live Ready, and that includes understanding your investment choices. If you have questions regarding your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
