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MagicDiligence (< 20)

July 2011

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The Patent Window is Closing on LML Payment Systems

July 28, 2011 – Comments (0) | RELATED TICKERS: LMLP.DL

LML Payment Systems (LMLP) is a small provider of payment transaction services to merchants providing products or services over the Internet. The company has three divisions. The first is the Transaction Payment Processing (TPP) unit, which accounted for 27% of sales in the fiscal year ended this March. TPP provides website and mobile developers a set of application program interfaces ("APIs") for credit card authentication, fraud protection, and payment clearing, in addition to hosted solutions (users are redirected to LML's website for payments). LML earns revenues from one-time setup fees for new merchants, monthly recurring gateway fees, and per-transaction fees. LML has over 10,000 merchants using its solutions in Canada.

The second division is the Check Processing (CP) unit. The business here is providing merchants a way to recover amounts on returned checks, including electronic checks. Revenues are earned when the firm is successful at recovering amounts, often based on a percentage of the principal. The CP unit accounted for just 5% of 2011 revenue, growing at just 6% over the prior year.  [more]

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Magic Formula Investing Weekly Roundup 7/24/2011

July 24, 2011 – Comments (0) | RELATED TICKERS: GME , LMT , MANT

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence:  [more]

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Can Hewlett-Packard Ink You Some Profits?

July 22, 2011 – Comments (0) | RELATED TICKERS: CSCO , DELL.DL , HPQ

Hewlett-Packard (HPQ) is a name almost everybody knows. Like Apple (AAPL), the company was founded by two engineering whizzes (Bill Hewlett and Dave Packard) in a Northern California garage, and has grown to today be one of the largest companies in the world, with 2010 revenues of $126 billion and a market capitalization of nearly $80 billion. This tech giant has recently fallen deeply out of favor, and today, with a 15.4% earnings yield and a P/E ratio under 9, sells at one of its cheapest valuations ever. Do the business results and outlook justify such a dirt-cheap stock price, or is HP a bargain big-cap Magic Formula stock worth buying today? Let's take a look.

This is such a gigantic company that it is difficult to get a grasp around the business. The largest revenue producer (32% of total) is the Personal Systems Group (PSG), which sells HP, Compaq, and Palm branded laptops, desktops, mobile phones, and other computing equipment. It is also HP's least profitable business at just a 5.7% operating margin, driving only about 13% of overall profits. Services account for 27% of sales, and 36% of earnings - the company's biggest cash cow, largely built around the purchase of EDS in 2008. The company's well-known Imaging and Printing products produce 20% of revenues and 28% of earnings. Enterprise Servers and Storage, consisting of equipment for the data centers behind the cloud computing movement, account for 15% of sales at a 13.8% margin. Software offerings and financial services (financing) rounds out the portfolio.  [more]

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Top 10 Magic Formula Stocks by Dividend Yield, Low P/S and P/B Ratio

July 19, 2011 – Comments (0) | RELATED TICKERS: AMED , GME , LMT

Every so often, MagicDiligence compiles a list of Magic Formula stocks sorted by their dividend yield, price-to-sales ratio, and price-to-book ratio for investors that like to use those metrics. Magic Formula Investing screens by a combination of high earnings yield and return on capital, aiming to find "great companies at cheap prices". By combining traditional value metrics, the result is a list of attractive value stocks for additional research. Here are the top 10 in each of the three categories listed above:

Dividend Yield  [more]

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Magic Formula Investing Weekly Roundup 7/17/2011

July 17, 2011 – Comments (0) | RELATED TICKERS: GD , HRS , LLTC

Magic Formula Investing (MFI), as described by hedge fund manager Joel Greenblatt in The Little Book that Beats the Market, consists of ranking stocks by earnings yield (cheap) and return on capital (quality), adding the rankings together, and buying from the resulting lists. Below are stocks that have moved into, and dropped out of, 3 of the MFI screens used by MagicDiligence:  [more]

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The SEC EDGAR System - An Invaluable Resource for Stock Investors

July 13, 2011 – Comments (0) | RELATED TICKERS: TSRA

Today I want to switch gears a bit and discuss one of the most valuable tools on the Internet for individual stock investors - the Security and Exchange Commission's (SEC) EDGAR System. While it is not particularly difficult to find lists of SEC filings on any financial website, EDGAR is the place I always turn to first. In there is the *complete* collection of legally mandated filings that all publicly traded companies must file with the government. It is always the starting point of any in-depth stock analysis done here at MagicDiligence.

For a beginner, and even for some intermediate stock investors, EDGAR can be a bit intimidating. So let's take a look at an example process for examining a company that we start off with little knowledge of, outside of perhaps a short company description, using EDGAR. For this example, we'll use an example with a particularly complete set of filings, Magic Formula stock Tessera Technologies (TSRA)  [more]

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Is Dun & Bradstreet A Credible Stock Pick?

July 07, 2011 – Comments (0) | RELATED TICKERS: DNB , EFX , MCO

Dun & Bradstreet (DNB) is a provider of business information with a history dating back nearly 170 years. Today's company has 3 business segments. Risk Management, driving about 63% of sales, provides reports and other information products that allow companies to determine creditworthiness of potential customers. This unit may best be thought of as a Moody's (MCO) or S&P (MHP) rating agency for private companies... in fact Moody's was spun off from the "old" Dun & Bradstreet in 2000. The second business unit is Supply, Sales, and Marketing (30% of sales), which provides information to help customers identify market segments, profile potential customers, build mailing lists, and evaluate current and potential suppliers. The third and final segment is Internet Solutions, consisting mainly of Hoover's, which has basic information on thousands of public and private companies, and AllBusiness.com, a resource and advice portal for business managers.

From a sustainability and profitability standpoint, Dun & Bradstreet is a very attractive business. The company's long history, established customer relationships, high retention rates (over 90% of risk management customers renew their subscriptions), and unmatched database of 150 million business records gives this company an appreciably wide moat. Although there is some competition in risk management, particularly Experian and Equifax (EFX), Dun & Bradstreet is the market leader. Two classic long-term competitive advantages apply here. One is the company's huge database, which would be nearly impossible for a competitor to build and maintain in any reasonable amount of time. Second is the "network effect". Companies want to be included in DNB's database because that is where creditors look for information, and creditors look for information at DNB because that is where the best client data comes from. These two factors together combine to create very high barriers for new competitors, and for the competitors that do exist, makes it difficult for them to gain market share. And, of course, in a market with few serious competitors, pricing usually remains rational, so the threat of a cost war is minimized.  [more]

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