RDM Corporation (RC-T)

This helps businesses process their finances quicker, check payments, financial back offices. It has bounced around for a while and thinks it has some upside. Has a lot of cash.

An E solutions provider for electronic commerce, and allows for payment processing. Thinks there is going to be a growing demand for financial technology for FinTech companies. Although he doesn’t own this, you are in the right sector and the right space. Expects there will be a continued demand for sectors and companies where Canada has some of the best growth stories.

He likes the optionality. They do a lot of electronic checking business, and can sell units to a company to allow them to deposit cheques directly into the bank. If you need a picture of a cheque they have that technology. They deal with a lot of the biggest banks across the US. A very high recurring revenue business that generates a lot of cash flow. Has $30 million of cash in the bank. Less and less cheques are being used, which is a big knock against them. If they can use the cash in intelligent way at a reasonable valuation, the stock should react very favourably. This gives you a dividend and free cash flow along with a relatively stable, but declining business.

(A Top Pick Sept 28/15. Up 14.89%.) They’ve done well in terms of their earnings. Last quarter was a little lighter than what he would have liked, but they have a very sound balance sheet with about $1.60 a share in cash. Still feels comfortable with this. At some point he expects they will get taken out or will make an acquisition.

It has really been building since the run up of ’07. Investor interest is growing and he continues to buy it.

Was a Top Pick in the past. The recent quarter was not as strong as he would have expected and there was a sell off. He thinks eventually these guys will get taken out. It is underfollowed and is held rather tightly.

Recently bought some and still thinks it’s early days for them. This company helps with the payment structures for companies. It is in software as well as hardware, providing scanners. Expects this will have a run that will last for some time.

A great company, with the $64 million question “what are they going to do with all their cash”. Too much cash is holding ROE down. Management said they are looking at stuff, but it has been a long time. The stock has performed well even without an acquisition, but if they finally acquire something, the stock will rocket ahead. If the same condition exists a year from now, investors are going to be very frustrated with management.

A small cap company in the financial services area. They are the originators of taking a picture of a cheque. They recently increased their dividend. This is a high ROE stock.

Process cheques, but can do it more quickly. You take a picture of your cheque and send it to the bank, rather than taking it in physically. They do this for a lot of corporations, so have been able to gain a lot more market share. They are under the radar with only about one analyst covering it. Have a lot of cash on the balance sheet. Have looked for acquisitions, but because the stock is trading at such a multiple, it is hard for them to make something that is accretive. Feels either someone is going to buy them or they’ll pay a special dividend. He picks away at this when there is weakness.

Provides software/hardware solutions to banks and financial services industry. A small business having a bunch of cheques would normally have to gather them up to deposit them. This company provides a scanner so cheques can be scanned and automatically deposited. The overall business is not setting the world on fire and earnings estimates have been reduced by 18% in the last 90 days. Earnings expected to decline by 37% which gives a PE of 23X and negative earnings growth. The stock appears to be expensive. Dividend yield of about 1.5%.

If a company is above a $100 million market cap, they will typically attract a larger number of institutional investors. There was a recent highlight suggesting that this company has upside towards $5 or more. Not cheap at a 21X PE against 5% earnings growth this year. Earnings growth forecast for next year is fairly modest at 4%. Have very interesting products and are continuing to build out, particularly with US banks, but expected earnings are pretty modest. ROE is 11%.

It is a value name with growth as well. It is a technology company. Their earnings were up a 100% last quarter. You take pictures of cheques when depositing them instead of taking them in to the bank. They raised the dividend a couple of times. The company could be sold, or they could give profits back as cash.

This was a dopey little microcap company sitting on a bunch of cash. Business is okay, but no one cared. So they decided to start paying a dividend, which they did a couple of years ago. Since then they have increased it pretty dramatically. The dividend keeps investors there, and it changed their valuation. You are getting paid to own this and it is not a bad company with a pretty good market niche in digital verification for financial institutions.

Has done extremely well. Came off in the last couple of months, but thought it was a very cheap stock. Pays a very nice dividend and has a great balance sheet. Revenue and earnings growth are there. They have been looking for acquisitions. They trade at such a low valuation that if they used their cash on their balance sheet, most of the private companies want higher valuations than what this one trades at. Dividend yield of 1.8%.