By Markos N. Kaminis, at WallStreetGreek.com
On this past Tuesday April 22, 2008, Wall Street Greek introduced the Karyatides Portfolio.
The first two additions to the portfolio are both stocks Mr. Kaminis followed as an analyst at Standard & Poor’s. In our opinion, recent market turmoil, capital flow shift into Large-Cap shares, and even a management warning at one of the companies have served to adjust the prices of these shares to very attractive points for long-term acquisition.
SEI Investments (Nasdaq: SEIC)
SEI Investments (Nasdaq: SEIC) provides investment processing, fund processing and investment management business outsourcing solutions to corporations, financial institutions, financial advisers and affluent families. SEIʼs performance is greatly dependent upon investment asset values, since it earns fees on those. As a result, the stock has been impacted by broad investment value decline.
However, over the years SEIC has been especially good at one thing, managing earnings. In times when business was good, it could leverage asset growth over its expense structure and offer above consensus performance. Even when business conditions were limited, SEIC has put its cash to use buying its own stock.
The company has been successful in offering outsourcing services to clients ranging across several business lines. SEIC is able to leverage its core technology and investment selection offerings across end clients and its expense structure.
We expect the company will continue to grow, aided by a ripe for picking market overseas. Also, SEI still has ample opportunity domestically, and may advantage from the failure of peers during these tough times. Trading at 16.5X the consensus EPS estimate of $1.44 for ’08 (based on a price of $23.74 when we initiated), and matched against 15% long-term growth expectations (SEIC has grown at a 19.5% rate over the last five years), the shares offer a unique opportunity for entry.
VCA Antech (Nasdaq: WOOF)
VCA Antech (Nasdaq: WOOF) the nation’s largest operator of free standing veterinary hospitals, with an attractive and profitable national diagnostic laboratory business, operates in an extremely fragmented market still opportune for long-term growth.
The stock is down this year mostly due to its own recession-related warning, but we are especially enthusiastic about it as a result. WOOF should benefit as it gobbles up its mom and pop competitors, and the $18 billion plus animal health care services market composed of 22,000 hospitals nationwide offers plenty of room for growth. WOOF operates as the leader in the industry with its network of less than 500 hospitals. WOOF gains significant economies of scale over its fragmented competition as it grows.
Are Americans going to give up Fido because of economic hardship? Some 63% of American homes own a pet, and surveys indicate they’re willing to spend $700+ to save their pet’s life. While Rex may not be enjoying as many treats as he use to, we expect he’ll still get his shots.
WOOF traded at about 18X ’08 earnings expectations of $1.57 going into its earnings report this past week. That compared to a 16% long-term growth outlook (grew 26% over the past five years).
Having the benefit of intimate knowledge of both these companies, we feel especially confident in them now, at valuations we believe offer special opportunity due to market environment.
Please see our disclosure at the Wall Street Greek website.