Constellation Software Inc. (CSU.TO)

Probably the smartest software guys in Canada, but smart from an acquisition standpoint. They are not focused on the growth side. Their whole thing is growth by acquisition. When a stock gets to be 14 or 15 times EBITDA he really looks for the Exit sign. He did on this one but was way too soon. Thinks it will always have a premier cachet to it. If it pulled back to $140, he would be looking to buy it.

Their business model seems to be fairly firmly entrenched. They don’t really vary from the typical type of software companies that they are involved in. Smart management. He has been getting numbers above $171 stocks but it doesn’t seem to matter. If you don’t own, you could do a little.

A good, long-term stock and it is getting better with time. They acquire more software companies allowing them to make even bigger acquisitions. They take all of that and then funnel the free cash flow down. Has been waiting for a good entry point. Not overly expensive.

Best capital allocator management in Canada. Thinks the stock will go to $250 in the next 12 months. Only trading at 12.5X earnings.

His model prices $148.96, a -4% or -5%. Would love to see some sort pullback.

Very acquisitive and there are concerns that acquisition targets could run out but these are very small companies that are tucked in. They retain management and continue to do well. Historically they have been extremely good. Three-year cash flow has grown quite well. Margins are good. ROE is extremely high. Sales growth is at the end of July was a 45%.

Have been doing a lot of acquisitions over the last several years. If they could not make an acquisition they would have to use their cash flow to raise the dividend. As the stock market goes down, business valuations also go down making it easier for them to make acquisitions.

Just reported Q4 earnings a couple of weeks ago. While the market was down 250 points, this stock hit a new all-time high. Thinks the stock goes way higher this year and that the analysts underestimate how big the earnings jump is going to be for 2013. Dividend yield of 3.22%.

They go around buying up software companies. He likes the business model. The stock is probably fully valued and there is a risk of a correction of 15-20% so he would be cautious.

(A Top Pick March 5/12. Down 39.35%.) This is a “growth through acquisition” model so they do a lot of acquisitions. He Buys because he feels it has a rapidly expanding net present value of its future cash flows.

Prefers companies that have organic growth with good margins and a business model that makes them competitive in a way that they can gain market share. Great management who knows how to put businesses together but are basically driven by acquisitions. Have to do an acquisition almost every 2 weeks.

(A Top Pick Jan 13/12. Up 49.75%.) Has been a ton of acquisition announcements over the last 3 months so he expects to see some positive revisions up from analysts as we go into 2013. Still a Hold.

Not too late to get into this one as long as the fundamental change factors continue to be positive. Not super expensive. Trades at almost 17X next year’s earnings but less so on cash flow, which is something like 10 or 12 times.

Chart shows a strong uptrend. What’s not to like? He likes to buy a stock in an uptrend near the trend line. If it breaks the trend line, you bailout but not until then.

(A Top Pick Dec 12/11. Up 58.3%.) A software company that buys other software companies. Best at buying best-of-breed software companies for very low multiples. Superb management team. Almost a 4% dividend.