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Tickers in this Article: SR, FDX, SVM, GE, FDC
"Commercial services" is a catch-all phrase that can include just about any enterprise that provides services to a business. Such a broad umbrella covers anything from FedEx (NYSE: FDX) to ServiceMaster (NYSE: SVM) to General Electric (NYSE: GE) to First Data (NYSE: FDC) to... well, you get the picture.

Such a broad definition demands refinement, so let's refine the definition to "office services". Now, let's refine further to "print services". Even in this narrow niche, the industry is diversified, dispersed and composed of many small- and medium-sized players.

Calling All Contrarians
One name, though, stands out if you have are a contrarian investor with a value bent, and that name is Standard Register (NYSE: SR), a provider of printed documents and ancillary services to the healthcare, financial services, insurance, pharmaceutical, manufacturing and transportation industries.

If you like buying on bad news, then Standard Register is a prime candidate. In 2006, the company reported a marginal increase of revenue to $894.9 million, which produced a loss of $11.7 million, or 41 cents per share, compared to a profit of $1.4 million, or five cents per share, on revenue of $890.1 in 2005

So far, Standard Registered has showed little improvement. Revenue for the first quarter of 2007 was $227.4 million compared to $228.5 million at the same time in 2006.

Meanwhile, operating income on continuing operations was actually a loss of $9.4 million compared to a $14.2 million gain in 2006. Bottom line: The company lost $828,000, or three cents per share.

Looking for additional bad news? The gross profit margin is currently lower than what is desirable, coming in at 33.7%, and the net profit margin doesn't exist. Ten thousand dollars invested five years ago is worth $5,500 today.

The Amazing Dividend
Nevertheless, Standard Register's board of directors declared a quarterly dividend of 23 cents per share to be paid on June 8, 2007, to shareholders of record as of May 25, 2007, giving the stock a 7.3% yield based on a current price of around $12.75 per share.

The dividend appears to be a product of some sort of financial alchemy, given that it has been maintained at an annual 92 cents-per-share payout since 2000, which is impressive considering in 2000, 2001, 2003, 2004 and 2006 the company posted a net loss. More impressively, cash flow only covered the dividend in 2000, 2002, and 2006. Since 2001, the cash account has actually dropped from $164 million to about $500,000 today.

So why do I like Standard Register? Because it's a classic cyclical investment, which means it should be bought on bad news and sold on good.

The news is bad today, to be sure, but the outlook is already improving. The company expects to post low-to-mid single-digit top-line growth, with EPS posting at 32 cents in 2007. And a further vetting of the financials reveals encouraging pockets of growth. Indeed, the company's highly profitable print-on-demand services grew 7.6%, while its document systems rose 16.7%. (For more information, read Finding Profit In Troubled Stocks.)


Return from the Great Beyond

Standard Register has demonstrated a "Lazarus-like" ability to resurrect itself. The bad times always seem to lead to good times. More importantly, investors have demonstrated a willingness to invest when the good times return. Consider 2002, when the company earned $1.14 per share, the stock traded as high as $35.90 per share. And consider 1998, when earnings ballooned to a whopping $2.08 per share, the stock traded as high as $40 per share.

Of course, past successes don't guarantee future successes. There's always the possibility that this time is different. Then again, past successes don't guarantee future failures, either, as many cyclical-company investors can attest.

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