Constellation Software Inc. (CSU.TO)

A well-run company and the CEO has created an unbelievable free cash flow machine, buying up software companies and having annuity revenues, and using the free cash to continue to buy more, etc. They now have a suite of thousands of companies and are on the hunt to buy more. This is on his radar screen, but he just can’t stomach buying it at this valuation.

(A Top Pick Feb 5/15. Up 41.69%.) Thinks they are shifting from a lot of little acquisitions to some really big ones that will come in once or twice a year. He continues to love this.

She likes this. Had gotten expensive last year. Their acquisition strategy has worked out really well. Acquisitions are now larger than what they used to be, but are not as frequent, so predictability is a little less. This is one that she would be picking away at on a really lousy day.

(Top Pick Mar 19/15, Down 0.74%) The sale worked out well and one of his stop losses kicked in and he sold. He is continuing to watch it before repurchasing.

This is a serial acquirer in the software space and have done fantastically well with that business model. It has had a great 10 year run. He is generally very cynical about serial acquirers, so didn’t go into this. Doesn’t feel he can know this name as well as he would like to, because it is hard to see what the true organic growth is when they are making acquisitions. He wouldn’t look at this at these levels.

The challenge is that the stock just keeps going up and it is very difficult to find an entry point. It is now down about 15% since January, and is at an entry point that many have waited for. Their core business is niche acquisition strategy, so they are acquiring small software companies. The average acquisition size is about $3 million, and they are focusing on a space that the bigger players are not interested in.

They do a lot of healthcare/government payroll sorts of things. They make organizations work more efficiently through software. This company is a huge acquirer. The founder still works at the company and has $500 million worth of stock. They don’t issue stock, the cash flow is great, balance sheet is really, really strong, they deliver on expectations, but they trade only in Canada and their earnings are in US$. They have had 11 days in a row where their earnings have gone up. Dividend yield of 1.06%.

Had been a long-term holder of this, but recently sold it when it broke down technically. This also has a lot to do with where we are in the market. Has been a fantastic performer, but doesn’t trade at a cheap multiple, so could be susceptible to lower prices.

(Market Call Minute.) This would be a Sell at this time, on valuation and a slowdown on deals.

There are certain business industries where you have recurring revenue, where clients are very, very sticky, and getting organic growth is relatively difficult, so it is cheaper to acquire.

(Market Call Minute.) One of the best companies in Canada. They have never issued stock in 10 years and they just make money and cash flow.

At some point you get too big and the growth numbers come down. Maybe the pause in the last few months was the market seeing this coming. He is not sure on this one.

Still likes this and would have no problem recommending it. Stock seems to be performing well. An outstanding great buy and hold company.

This stock hits 2 of his biggest metrics, price momentum and value. Scores in the top 10% in momentum and in the top 20% on value. ROE is off the charts at 50%, and has historically had a strong Return on Equity for a long period of time. This doesn’t look expensive on a multiple basis.

(A Top Pick Oct 24/14. Up 84.82%.) The management team is so good at allocating capital.