The Tycoon Report

ANOTHER BRICK IN THE WALL

ANOTHER BRICK IN THE WALL: Technology spending is expected to grow again this year – What you need to do is own a company that’s going to show you returns by next week!

-- By Wayne Mulligan

No matter how many times I think to myself, “It’s going to get harder and harder to find bargains in the technology sector,” I come across a situation like the one I’m going to share with you today. Right now I’m looking at a multi-billion dollar IT Consulting Company. It has offices around the world and services Global Fortune 500 and Fortune 1000 companies. It has a consistently profitable track record going back over 15 years and has one of the best brand names in the business.

The company folks, is Accenture (NYSE Symbol: ACN).

Accenture is a $17 billion dollar Global Technology Consulting & Services company. The company is actually the result of a spin-off of Anderson Consulting back in 2001. After a dip in its stock price in the earlier part of 2005 the stock recovered and showed decent gains for the year.

I love this stock for a number of reasons.

First off, the company has an extremely strong financial foundation. It has virtually no Long Term Debt. It also generates a lot of Cash Flow and Earnings. One of the things I like the most about this company from a financial perspective is that it’s been able to consistently maintain extremely high Returns on Invested Capital. When I say extremely high, I mean it’s been averaging 65% Returns on Invested Capital for the last four years. This means that for every dollar Accenture invested into its business, the company was able to earn 65 cents! That is a HUGE number considering the average American company only earns 12% on invested capital. Not only that, but the company has also been growing profits at double-digit rates for the last three years running!

That’s why it amazes me that this stock is only trading at a multiple of 19.

That’s right folks…Accenture, a company with no debt, a great long term track record, and earning HUGE returns on invested capital is trading a lowly multiple of 19. This is all while other, less stable companies in this sector, are trading at multiples upwards of 90! So, from a fundamental perspective, I like the company.

But, looking at it from a technical (analysis) perspective is what makes me LOVE this stock! Right now the chart is showing what’s known as a near perfect “cup and handle” pattern. It’s shown a slight dip in price for the first part of 2005; then it began to trade higher (this creates the cup-shaped “U” in the stock chart.) Then, as you can see, the stock traded sideways for a bit, creating the “handle”. And now, it’s beginning to break out on heavy volume!

It just passed through an all time high and only looks to be going higher. My advice to you: Buy at this price and buy it quickly – Who knows how long it will stay there? Combine the technical aspect with the fact that the company has a strong business and financial foundation, and I truly feel that the downside here is minimal. Even if the stock were to pull back from where it is now, I’d definitely think about buying more – But we’ll jump off that bridge when we come to it.

So, until next time folks…