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Company name Informatica Corporation
Stock ticker INFA
Live stock price [stckqut]INFA[/stckqut]
P/E compared to competitors Fair
MANAGEMENT EXECUTION
Employee productivity Good
Sales growth Good
EPS growth Poor
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $32.5
Target stock price (averages with growth) $45.2
Target stock price (averages with no growth) $40.55
Target stock price (manual assumptions) $49.35

The following company description is from Google Finance: http://www.google.com/finance?q=infa

Informatica Corporation (Informatica) is the provider of enterprise data integration and data quality software and services. The Informatica Platform is a set of technologies to enable a variety of complex enterprise-wide data integration initiatives, including Enterprise Data Integration, Data Quality, Master Data Management, B2B Data Exchange, Application Information Lifecycle Management, Complex Event Processing, Ultra Messaging, and Cloud Data Integration. The Company’s products include Informatica PowerCenter, Informatica PowerExchange, Informatica Data Services, Informatica Data Quality, Informatica Master Data Management (MDM), Informatica B2B Data Exchange, Informatica Application Information Lifecycle Management, Informatica Complex Event Processing (CEP), Informatica Ultra Messaging and Informatica Cloud. As of December 31, 2010, the Company had approximately 4,200 customers worldwide. In March 2010, the Company acquired 29West Inc. (29West).

Confident Investor comments: This is one of those companies that is probably a bit better than its rating. The company was doing much worse several years ago and that is affecting its rating dramatically. It quite likely should be a Fair company if it was not for its poor years that seem to pass. At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock.

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I don’t want to be accused of being Chicken Little and warning the sky is falling but we are entering a time when the market could go down dramatically.

As I write this, the US government is getting very close to not raising the debt ceiling. Most pundits expect that a compromise will eventually be reached and "Armageddon" will be averted. It appears that by Monday, August 1, 2011, this will be far from certain. By August 2, the markets will be a mess if the US government doesn’t have the money to pay bills. While it is possible that some stocks will do well in that scenario, the biggest likelihood is that the entire market will go flat or have a significant loss.

So what should a Confident Investor do in this situation?
The thing to remember is that cash is king! You will not lose money in the stock market if you are not in it. I wrote a popular article many months ago about the benefits of sitting on your money when you are concerned with the direction of the market. Here are my suggestions for August 1:

  • Sell every stock you own. Yes, that is extreme but it is the safest way to insulate your portfolio from government inaction.
  • If you don’t like that advice, if you have a profit in an individual stock, lock those profits in by at least selling your principle. If you want to leave your profit in the stock and put your principle back into the bank you will at least not lose your hard-earned money.
  • At least, cut your exposure to your largest investments by selling half of your investment.

Let’s examine the risks in this strategy
For this analysis let’s assume that you own 10 high-quality companies such as those found on the Watch List. Let’s assume that they are each $50 per share and you own 100 shares of each. To sell these 10 positions you will be out $100 (I am assuming you have chosen a broker that charges a reasonable fee for a transaction e.g. $10 or less)

  1. The market is flat and nothing happens. You buy back into your holdings at approximately the same price.  You are down $200 for a round-trip and a little piece of mind.
  2. The government doesn’t do a deal and the market appreciates slightly. I doubt this scenario will happen but there is a chance. On a typical good week, the market might go up a couple of points but since you have great stocks, maybe they go up 3% and you missed out. To buy back in you are out the $200 for your broker and 3% of $50,000 for a total of $1,700.
  3. If the market tanks by 15% (a very real possibility for the short term) and you buy back in at an average of 10% lower when you are confident that the worst is over then you have made money. In this case, you will buy 10% more stock for your 50K and since you are invested in great companies like on the Watch List, your stocks will eventually grow back to their present value and you will have made $5,000 (minus the $200 for the broker so a net of $4,800) off of this government screw-up.
  4. If the market thinks this Armageddon is not a big deal and only drops a paltry 3-5% then you will essentially break even since you will wait a week or so and much of the 5% will recover to maybe a 2% loss when you rejoin. This means you will buy back in for a net of about $800 which is essentially covering your costs and headache of managing your portfolio so closely.

When was the last time you were extremely confident that you were at a short-term high price and the stock was going to drop significantly? Be cautious on Monday and make money. If number 3 above happens, you would have an approximately 10% increase in the size of your portfolio just by doing some solid money management.

Why should you wait until Monday?
To be honest, if you have a lot of profit on a stock then maybe you shouldn’t. No reason to get greedy. Sell your holdings now if you are very concerned and think there is little chance of a deal. However, if the US government puts together a solid plan over the weekend when their backs are against the wall then the market may reward them. A good deal that gets wrapped up on Sunday could see a several point move early in the week. I would hate to see you miss that move by being too cautious. If you are scared though, I cannot blame you from moving on Friday.

Also, any deal on Monday is likely to not be very compelling. It might avert a debt ceiling but it likely will not harbor great changes in ways to avert the problem in the next year. This means that a deal on Monday will probably not make the market move up greatly. Only a deal during the weekend will be complete and tough enough to make the market move.

Mutual fund strategy
If you own a mutual fund, your options are far more limited. By buying a fund you are relying on a smart manager to take care of your money. The problem is that manager cannot react too rapidly to this situation due to the large amount of invested capital. Selling a large chunk of shares in any one company is difficult for a fund manager as it causes a market reaction and the price of the stock drops. Also, since your fund selling is not transacted until the end of the trading day, Monday may be too late.  If you want to reduce the exposure in your stock based mutual fund then you may need to do your selling on Friday.

Other options
I do not recommend to any Confident Investor that they short a stock, but if you are so inclined then this may be an excellent time to evaluate this strategy.

Some investments may appreciate so you might want to take a risk. I would avoid any companies that get a lot of money from government or are very cyclical (think defense contractors, oil companies, transportation companies, and farm management companies). You may also want to avoid companies that make a product that the government buys (think construction equipment, big construction companies, etc.). Also, if interest rates rise dramatically then any company that needs to borrow cash on a regular basis or does not have a lot of cash in the bank should be avoided. Companies that do well when the US government is screwed up MAY take a quick uptick though (think gold).

Warning
With all of this, there may be tax consequences. If you are concerned about the tax consequences of your move, I suggest you approach a tax adviser.

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Apple [stckqut]aapl[/stckqut] has come under a great deal of discussion in the past week or so due to it’s ever expanding hoard of cash. Most companies hate having that much cash in the bank (or perhaps they are not fortunate enough to accumulate it) but Apple seems to really enjoy having a big savings account.

Since all the other bloggers that discuss companies and investing seem to have chimed into this conversation, I have to decided to do it as well.  Here are my suggestions:

  1. Use the cash like they have been. Apple uses its cash very effectively and very aggressively. As pointed out in PC Magazine, Apple effectively uses its cash to gain a technical advantage by locking up its supplier community in ways that their computer and device competitors such as Toshiba, Dell [stckqut]dell[/stckqut], and Hewlett Packard [stckqut]hpq[/stckqut] simply cannot afford to do. They are able to help manufacturers build their plants to create new components and lock in a pricing and supply chain that virtually locks out or delays the competition from the latest and greatest hardware advances. This competitive advantage means that they can continue to create large amounts of profit and build more cash.
  2. Increase R&D and rapidly expand their products with things that people want. Last year, Apple spent about 2.7% of revenue on R&D (and last year about 3.1%). I would like to see this grow to 7 or 8% of revenue. Yes, this is a big increase but Apple has a unique opportunity to solidify their presence in the markets that are important to them. Think what would happen if Apple had twice as many products that covered a broader spectrum of electronic experience.
  3. Increase their library. They should vastly increase their library of movies and video content to stream.  While they shouldn’t be stupid about the deals that they cut but they need to make deals with every movie and TV content holder out there. The consumer needs to feel that if they want to watch a professionally created video, Apple will always have the content. Making a ton of money in this area is not incredibly important (but don’t do it at a loss). What is more important is that they use this content to drive the sales of more multimedia devices and computers. While they are at it, they need to cut deals with the newspapers and magazines as well. Apple has had some short-sighted rules that have prevented the allegiance of those that create printed material – they need to put these rules aside.
  4. Streaming. They should make it so that they can stream to their subscribers more easily and more reliably than ANYONE else.  Supposedly they are investing in more data centers and that is a project that should be accelerated and expanded. Also, there are rumors of acquisition discussions with Hulu, this would be an acquisition that makes sense as it fits with their core offering today. Some commentators suggest that they should diversify by buying a company like Facebook but that would be ill-advised. Most companies that try to expand into vaguely related markets end up screwing up (think of EBay [stckqut]ebay[/stckqut] buying Skype).
  5. Integration with the cloud. They should make it so that integration between their products on your local network and between their products and the cloud is seamless and easy – in fact even fun.  Lion looks like it has great features in this area but they should take it to a new level. They would do well to expand that connectivity by putting a Windows application out there that makes Windows computers integrate easily and rapidly with Macs/iPhones/iPads. This doesn’t mean iTunes but instead iTunes on steroids – no cords – use the cloud, the private cloud, and the local connectivity connection of the computers.Read More →

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This is a series of articles describing how to quickly understand the key aspects of the annual report from a company that you have invested in with your hard earned money. This series started with an overview post on November 30, 2010.

4. DSO

DSO stands for Days Sales Outstanding. Not all companies will report DSO but if they do, you can usually find it by searching for ‘DSO’, ‘Days Sales’, or ‘Receivables’ in your reader or browser.

In nearly every case, you just want to make sure that this number doesn’t get dramatically larger than it was previously. DSO that is increasing means that the company’s customers are, on average, taking longer to pay for their purchases. This means that your company’s cash is being tied up paying bills and salaries while the check is in the mail from the customers.

You want your company to constantly be working to shrink the DSO metric. A large and increasing DSO can mean that the company is hiding something bad and it is heading into trouble. You may want to liquidate your holdings if the DSO is going up dramatically and you don’t think it is for a good reason.

In general, it is an excellent combination if revenue (sales) and net profit are going up at 10% and the DSO is decreasing.

Here are the links to all 9 posts of the series:

  1. The 7 critical items to read first in an annual report in 20 minutes (Part 1 of 9)
  2. The 7 critical items to read first in an annual report in 20 minutes (Part 2 of 9)
  3. The 7 critical items to read first in an annual report in 20 minutes (Part 3 of 9)
  4. The 7 critical items to read first in an annual report in 20 minutes (Part 4 of 9)
  5. The 7 critical items to read first in an annual report in 20 minutes (Part 5 of 9)
  6. The 7 critical items to read first in an annual report in 20 minutes (Part 6 of 9)
  7. The 7 critical items to read first in an annual report in 20 minutes (Part 7 of 9)
  8. The 7 critical items to read first in an annual report in 20 minutes (Part 8 of 9)
  9. The 7 critical items to read first in an annual report in 20 minutes (Part 9 of 9)

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As you probably have read, Berkshire Hathaway has offered to purchase the remaining shares of Wesco Financial [stckqut]WSC[/stckqut] that the company currently does not own. I assume this offer will be accepted (although there is a chance that the price will have to increase). Based on this news, I am removing Wesco from my Watch List as I cannot confidently say that the price of the stock will increase dramatically from this point.

I do not encourage you to expand your position in the stock from this point. If you would like to hold on to the stock to look for a better price from Warren Buffett, that is your choice.