Xerox (XRX)

This has basically split into 2, and he thinks that was wise corporate engineering, because investors are now going to be able to pick which part of this legacy they want to invest in. Thinks a lot of people are still digesting what the balance sheet looks like and what the outlook is. He doesn’t think they are overvalued.

(Top Pick June 2/15, Down 18.99%) A big free cash flow generator and buying back a third of their shares over the last 5 years. We will see what the two pieces look like at the end of this year.

This is getting very interesting. The company has been painted with the story that it is a failed company and nobody is buying Xerox machines anymore. They peaked in 2000 and has been straight down and flat lined since then. It looks like they have gotten to the point where revenues have finally stopped going down. Have around $17-$18 billions of revenues. They are in 2 divisions. Documentation of outsourcing and IT consulting. Hasn’t bought the stock yet, because he doesn’t entirely understand what they do.

They made a large acquisition in the business process outsourcing business, and that is the margin driver for this company. Trading at around 9X its free excess cash flow. The stock price is not moving and the company is going to buy back about $1 billion worth of stock. If the stock price doesn’t move and the cash flow continues, they will be able to buy back every single share in the next 12 years. A compellingly cheap story. Yield of 2.44%.

(A Top Pick Sept 6/13. Up 28.18%.) Still likes this. It is a slow and steady cash flows business. Cash flow typically does well even when markets are selling off. This is the old photocopy business, but they have acquired a large services company, which is the real growth driver now. You won’t make a ton of money, but if you like slow and steady with a decent dividend that might go up, this is not bad.

(A Top Pick July 2/13. Up 49.25%.) This is a free cash flow story, and they bought back a lot of shares and increased their dividend. Have struggled to generate revenue growth, so they are generating EPS through share buybacks. Feels this is now coming closer to his target valuation of $15 per share. Wouldn’t be a buyer of this today.

Thinks this is fairly valued. He categorizes this as “old tech”. Newer technology stocks have higher embedded revenue growth. This one offers you a pretty decent dividend yield, and the valuation is okay, but as far as the old tech sector goes he prefers names that have a little bit of secular growth. Would much rather have something like Oracle (OCLN-N) or SAP AG (SAP-N) (?). This company is going to have to make a real effort to integrate their software with their hardware business, which continues to decline.

Has done reasonably well over the last little while and is really 2 kinds of companies. They bought Affiliated Computer a few years ago which is in the business of outsourcing. That is really carrying the company. Their processing site is really doing quite well and the traditional copying business is not doing so well. Processing side is above 55% of the total business. He prefers Teletech Holdings (TTEC-Q), which gives you more of a pure play in outsourcing.

Decided to buy a different name but had all the qualities he was looking for. Low valuation, high free cash flow and hated by the market. Not an exciting opportunity here. They have been raising the dividend now. Increasing their business document business.

Reinventing themselves is a fair statement for this company. In 2010, they bought Affiliated Computers that was in the BPO (business processing outsourcing) business and they do things like medical expense claims, accounts payable, etc. It is basically outsourcing some of the paperwork that companies have and don’t like to fund because it is expensive. This represents about 55%-60% of Xerox entire business. The drag on the business is the old copier business.

Chart shows a solid up line from the beginning of the year and has just broken down through this. This is the time of year when the stock should be picking up but it has broken down. Not a stock he would be entering. At best, you could see it consolidating sideways.

Company from the past. Have gained some traction recently via an acquisition. It is starting to look interesting.

Not the old Xerox. More than half the company is in the services business. This is throwing off a lot of free cash flow. Big dividend increase this year by 35%. Buying back a huge amount of shares and have been for the last couple of years. He still sees good upside for this.

Interesting company and he has a positive bias on them. He legitimately thinks they can turn their business around from the traditional copier type of PC/hardware business to something that looks more like a services business. Around $10 is a fair entry point for the stock. Your upside over 12-18 months is probably $14-$15.

A safe, grinding away business. Not the old Xerox anymore. Still in copying and printing but it is legacy and low margins. A few years ago, they acquired a big services company so they are kind of like IBM now. They borrowed a lot of money to do this. It is generating good cash and they are paying down debt. Expect dividends will be increased.