Maxim Group LLC Analyst Echo He says Baidu Inc (ADR) (BIDU) is one of her top stock picks this year, in part because of the company exposure to mobile search. She says she expects to see revenue growth acceleration this year as compared to 2013.
“Baidu is the number one search engine in China, as Google (GOOG) is here. Baidu is the dominant choice for PC search, probably accounting for around 60% search traffic on PC,” He says. “It also has dominant mobile search traffic share. That dominant market position gives Baidu pricing power, so Baidu is able to claim premium pricing over competitors.”
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But, He says competition remains a risk for Baidu, primarily from Qihoo 360 Technology Co. Ltd. (QIHU), which she says is the second-largest search engine in China. As a result of competition, He says Baidu has to continually invest and spend to maintain its market dominance.
“Baidu’s increasing expenses may lower its margin, which will not likely be as good as it has been in previous years,” He says.
Smtp Inc (SMTP) CEO Jonathan Strimling says the company wants to broaden its suite of services beyond a delivery platform to meet e-mail users’ needs. He says the company will build some additional capabilities internally, and may look outside for other opportunities.
“In February of this year, we raised capital and uplisted the company to Nasdaq,” Strimling says. “One of the primary drivers for doing this was to strengthen our position to pursue acquisition opportunities, and we believe these acquisitions can be accretive in three ways.”
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Strimling says acquisitions will help the company strategically but provide some of the additional services customers are seeking. And, he says acquisitions could be accretive operationally because SMTP has a low cost structure that it can leverage and bolt other businesses on to.
“And then, we think it’s accretive financially because we think we trade at a discount because we’re small,” Strimling says. “And just as we grow scale, we should see multiple executions as well.”
VASCO Data Security International, Inc. (VDSI) CEO T. Kendall Hunt says the company intends to continue its historical strategy of technology tuck-in acquisitions. Hunt says he prefers smaller tuck-ins to larger acquisitions, which can be expensive and risky.
“We are interested in finding more products for our existing customers, and our enterprise and application security channel,” Hunt says. “We are always looking for new products to enhance the security of our existing customers, and we are looking for technology that will have appeal to our prospects and our competitors’ customers.”
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At the end of Q1 2014, Hunt says VASCO had about $110 million in cash and no debt, which puts the company in a position to continue its acquisition strategy.
“Along the way, over the years since 2003, we have acquired nine companies,” Hunt says. “We have been diligent about staying true to our strategy of spending the cash we generate wisely.”
Citigroup Investment Research & Analysis Analyst Garen Sarafian says displacement opportunities in the inpatient market will increasingly go to what he calls “winners.” He says that by definition, displacement opportunities mean customers are pulling out of one vendor, or an in-house system, and awarding the business to a new vendor. He says Cerner Corporation (CERN) will be a beneficiary of that dynamic.
“On the inpatient side among our coverage universe, Cerner is one that we like a lot, using that same framework of being successful in the EMR market as well as having the products available for the analytical portion of the needs and providers,” Sarafian says. “They are highly successful on both. In the EMR market, on the inpatient side, it’s essentially a two-horse race with a private competitor, and they have great references, are highly reputable.”
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Sarafian says the inpatient market is already conservative, and hesitant to engage vendors with whom they’ve had bad experiences in the past. He says Cerner’s reputation should help the company win new business.
“If they didn’t like a vendor before, they are going to go with whoever is giving the best reference points and the EMR that’s the least amount of risk to them,” Sarafian says. “In the inpatient market that will favor Cerner because again, it’s become a two-company horse race and they are the public company there.”
Investors may be overlooking the opportunity that athenahealth, Inc (ATHN) currently has in front of it, according to Stephens Inc. Analyst Mohan Naidu. He says that athenahealth is getting beat up along with many other names in the tech space, which are primarily high-multiple cloud names.
“Athena is probably the single biggest player with a big technology advantage compared to any other physician vendor in this space,” Naidu says. “What that is doing for athena is, number one, they are getting into a lot of larger deals, which is good. They are slowly making their way into the physicians and making their way into the hospitals, and also gathering a lot of momentum in the larger practices, which is really good.”
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Naidu says that because of athena’s technology advantages, the company can introduce new services and technology much faster than a traditional software vendor.
“With the SaaS technology advantage for athena, they can just turn it on in their central system, and it will start working for everybody, and they can look at which services are getting more traction than others, and they can just figure out usability and all that,” Naidu says. “So there is a huge technology advantage for athena, and their efforts toward care coordination both inside and outside of the hospitals — if that works, I think that’s going to be a huge game-changer for athena because of the large market opportunity that they have. That’s why I like athena.”
Liberum’s executive turnover data for April 2014 seemed to conflict a bit with the latest employment growth and unemployment figures that were recently announced for April 2014. CEO and CFO changes monitored by Liberum Research saw reasonably high percentage declines from the same month a year earlier. The numbers were a bit better for those two categories, when compared with the previous month’s total for March 2014. The trend was a somewhat more positive when we examined the same changes with regard to overall C-level turnover (as defined by Liberum as all C-level executives down to VP level) and Board of Director changes. C-level turnover increased a mere 2% from the year earlier period of April 2013 and saw a slight increase of 3% when compared with the previous month of March 2014. Board of Director turnover was slightly different with a 7% increase from the year earlier and a static change for the previous month of March 2014. Overall, Liberum was not very concerned with the slight declines recorded for April 2014. We still see positive changes continuing in executive turnover totals and expect them to remain the same or higher as we move forward in to the spring and summer. Investors should keep this in mind.
Portfolio Manger Andrew Wang of Runnymede Capital Management says that Sonic Corporation (SONC) was one of his best-performing service stocks last year, due to the company’s unique experience offerings and ability to retain customers.
“Sonic Drive-In is one of America’s largest restaurant brands and drive-in restaurant chain serving more than 3 million customers every day. Sonic delivers a unique experience because you cannot enter their restaurant; they’re set up like an old-fashioned drive-in with carhop service,” Wang said.
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Wang also says Sonic has had double-digit earnings growth year after year, and the company is looking to expand across the U.S.
“Historically, they were found south of the Mason-Dixon Line in warmer climates. Sonic is committed to expanding across the United States primarily through coast-to-coast franchise development,” Wang said.
Managing Director Gregory A. Reid of Salient Partners has seen appreciation in ONEOK, Inc.’s (OKE) stock since the spinoff of its utility business, and he expects the company to build and sell more midstream assets, resulting in growth in the MLP and general partner.
“They went through a process of unlocking the value from their midstream business by spinning off the utility and closing down an energy service business, and it left them as a pure-play general partner,” Reid said. “They did see a lot of appreciation over the last 18 months or so while they unlocked that value.”
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ONEOK’s stock rose from $40 to around $61 as the spinoff was completed, Reid says. The company’s long-term goal is to build more midstream assets, and he predicts even more growth as a result.
“The goal of that company over the long term is to build more midstream assets at the GP level and the LP level, and ultimately drop down or sell the assets into the MLP over time. That will create growth in the MLP and create more growth in the general partner, in our opinion. We prefer to own the general partner there, believing that’s going to create a higher long-term total return for our investors,” Reid said.
Amazon.com, Inc. (AMZN) is currently trading at a discount, according to Evercore Institutional Equities Analyst Ken Sena. He says he favors companies that are creating a healthy marketplace dynamic, and he believes Amazon is one of those.
“The company is very consumer-centric, but when you look at the amount of volume that goes through their platform, trades at a discount, I’d say, even to Wal-Mart (WMT),” Sena says. “It’s growing much faster, and it has the potential for margin leverage.”
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Sena agrees with investors who think Amazon’s earnings per share are too low. However, he says Amazon has the opportunity to expand its margins because it is a strong grower with a huge addressable market and strong competitive barrier.
“Over time, all those things kind of point to I think a much better earnings per share story at a few years out,” Sena says. “So that’s one I really like.”
Laura Martin, Analyst at Needham & Company, LLC, recommends buying shares of Facebook Inc (FB). Her thesis is that Facebook’s valuation should be calculated as an option to generate revenue from 1.3 billion people, which was its total reach in 2014. Martin particularly likes Facebook’s strategy of making personalization and video acquisitions.
“Specifically, we think the WhatsApp acquisition was a good move, because it offers a different form of revenue and an option on 500 million people in largely non-overlapping countries to Facebook,” Martin says. “We also like that the revenue stream from WhatsApp, which is subscription, is different than advertising — Facebook’s only revenue stream today.”
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Martin says that revenue diversification in the form of a second revenue stream, like the one Facebook acquired with WhatsApp, typically expand a company’s multiple by three points.
