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The Next Best Thing To Printing Money
Are you truly a believer in the economic recovery? Then the usual suspects are likely to be in your portfolio: consumer electronics, automakers and retail. However, the obvious names aren't the only worthy names to own right now.
Think obscure. Think indirect. Think ... commercial printing?
Don't laugh - boring can be beautiful too, particularly when these boring stocks appear to be on the verge of a major turnaround in terms of revenues as well as earnings.
IN PICTURES: 7 Forehead-Slapping Stock Blunders
It Makes Sense
Yes, people are buying iPads, cars and clothes as it becomes clearer the economy isn't going to implode. Businesses are doing the equivalent by investing in their growth, and buying things they've been putting off. Printing services are one of these things, and an unrecognized one for most investors. The fact that the rest of the world hasn't caught on yet, however, is where the opportunity lies.
As for "evidence", a few key news items are clear, but I think we can infer something broad from something specific.
Take the recent announcement from Innerworkings Inc. (Nasdaq: INWK) as an example. In a multi-year deal, Unilever North America has tapped Innerworkings to handle all its promotional printing.
In a slightly different vein, Cenveo Nc, (NYSE: CVO) has entered a mutually exclusive relationship with Bowe Bell + Howell. Under the agreement, BBH will act as the distributor of Cenveo's roll-based windowed envelopes for use in Bowe Bell + Howell's machinery.
Neither are necessarily earth-shattering announcements, but both show something we haven't seen in a while: the willingness of a business to commit to a printing vendor, either as a customer or a partner. Though they're still an exception and not the norm, these two small gestures are apt be repeated within the industry, which bodes well for revenue.
Proof Is in the Pudding
If the deals aren't convincing, maybe some of the numbers will be, like last quarter's numbers from Bowne & Co, Inc. (NYSE: BNE). The printing firm, which specializes in investor-related materials, saw an 8% increase in quarterly revenue, and a 36% improvement in gross profit. The per-share GAAP loss shrank from 39 cents to five cents.
Innerworkings put on a similar show, raising Q4 enterprise revenue by 17%. Earnings per share totaled five cents, one cent per share for the same period a year earlier. Multi-Color Corp. (Nasdaq: LABL) also turned in higher year-over-year sales and earnings in its most recent quarter; operating earnings per-share increased from 14 cents to 26 cents. You get the idea, money is flowing.
Bottom Line
None of this is to imply that every single printing service is doing better, because some aren't. However, I think it's safe to make some generalizations about the whole group from what we've recently seen from a handful of companies.
The most compelling part of all, however, is that these stocks are still off the radar for most investors, despite the turnaround story in progress. This is the kind of thing Warren Buffett would like - buy it when nobody else wants it. (Learn more about Buffett's style of investing, see: Warren Buffett: How He Does It.)
By the way, though not referenced above, I'd definitely put Schawk Inc. (NYSE: SGK) in the mix if you're on board with the idea. Most investors are assuming the stock's still in the red, as there's still a net loss on a trailing-twelve month basis. That reality obscures the fact that the company swung back to profitability - in a big way - over the last two quarters. In other words, the company's turned the corner.... not many people realize it yet though.
Once investors figure it out though, it could be fireworks. See, as compelling as the forward-looking P/E of 13.2 is, it still may be too modest. Schawk more than doubled EPS estimates in each of its last two quarters. There's something exciting, but stealthy, going on in the commercial printing market.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Think obscure. Think indirect. Think ... commercial printing?
Don't laugh - boring can be beautiful too, particularly when these boring stocks appear to be on the verge of a major turnaround in terms of revenues as well as earnings.
IN PICTURES: 7 Forehead-Slapping Stock Blunders
It Makes Sense
Yes, people are buying iPads, cars and clothes as it becomes clearer the economy isn't going to implode. Businesses are doing the equivalent by investing in their growth, and buying things they've been putting off. Printing services are one of these things, and an unrecognized one for most investors. The fact that the rest of the world hasn't caught on yet, however, is where the opportunity lies.
As for "evidence", a few key news items are clear, but I think we can infer something broad from something specific.
Take the recent announcement from Innerworkings Inc. (Nasdaq: INWK) as an example. In a multi-year deal, Unilever North America has tapped Innerworkings to handle all its promotional printing.
In a slightly different vein, Cenveo Nc, (NYSE: CVO) has entered a mutually exclusive relationship with Bowe Bell + Howell. Under the agreement, BBH will act as the distributor of Cenveo's roll-based windowed envelopes for use in Bowe Bell + Howell's machinery.
Proof Is in the Pudding
If the deals aren't convincing, maybe some of the numbers will be, like last quarter's numbers from Bowne & Co, Inc. (NYSE: BNE). The printing firm, which specializes in investor-related materials, saw an 8% increase in quarterly revenue, and a 36% improvement in gross profit. The per-share GAAP loss shrank from 39 cents to five cents.
Innerworkings put on a similar show, raising Q4 enterprise revenue by 17%. Earnings per share totaled five cents, one cent per share for the same period a year earlier. Multi-Color Corp. (Nasdaq: LABL) also turned in higher year-over-year sales and earnings in its most recent quarter; operating earnings per-share increased from 14 cents to 26 cents. You get the idea, money is flowing.
Bottom Line
None of this is to imply that every single printing service is doing better, because some aren't. However, I think it's safe to make some generalizations about the whole group from what we've recently seen from a handful of companies.
The most compelling part of all, however, is that these stocks are still off the radar for most investors, despite the turnaround story in progress. This is the kind of thing Warren Buffett would like - buy it when nobody else wants it. (Learn more about Buffett's style of investing, see: Warren Buffett: How He Does It.)
By the way, though not referenced above, I'd definitely put Schawk Inc. (NYSE: SGK) in the mix if you're on board with the idea. Most investors are assuming the stock's still in the red, as there's still a net loss on a trailing-twelve month basis. That reality obscures the fact that the company swung back to profitability - in a big way - over the last two quarters. In other words, the company's turned the corner.... not many people realize it yet though.
Once investors figure it out though, it could be fireworks. See, as compelling as the forward-looking P/E of 13.2 is, it still may be too modest. Schawk more than doubled EPS estimates in each of its last two quarters. There's something exciting, but stealthy, going on in the commercial printing market.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
James Brumley
James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.
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