Leveraging data at Equifax
This financial services firm is benefiting from its vast database of consumer and business credit information.
By Chuck Carlson, DRIP Investor
Among the stocks in my Editor's Portfolio of favorite recommendations, none is probably better situated for short-term gains than Equifax (EFX).
The company is a leader in information solutions, leveraging one of the largest sources of consumer and commercial data. It provides consumer-credit information, business-credit intelligence, fraud detection, and various marketing, human resources, and e-commerce services.
The stock, which has been especially strong in recent months in moving to an all-time high, has much to recommend at this time:
An uptick in the housing and rental markets should spur increased demand for the firm's various consumer-credit services.
Record per-share profits this year and next should provide support to the stock. Dividends should grow by double digits over the next 12 months.
I've always been a fan of companies that control large amounts of data. Profit margins are typically high for such companies that can generate a constant stream of new products and services from its vast database of information. Equifax is the poster child for such a business.
To be sure, the company is not without its risks. Given the nature of its business, Equifax is vulnerable to governmental investigations and potential increased regulations as to how its data can be used.
The company recently agreed to pay $393,000 to resolve allegations it broke the law by selling lists of consumers who were late on their mortgage payments.
The company's business is also vulnerable to recessions, as evidenced by the stock price falling below $20 during the 2008-2009 economic downturn.
Still, consumers remain engaged at this point judging from their spending patterns in recent months, and lending should loosen up a bit in 2013, which would be a plus for the company.
Admittedly, the stock, trading at 17 times 2012 earnings estimates, is not cheap. However, I would not be surprised to see these shares continue their upward momentum for the remainder of this year.
In fact, given the stock's altitude, a stock split would not be surprising. Equifax last split its shares in 1995.
Equifax's direct-purchase plan has a minimum initial investment of $500. Subsequent investments are a minimum $50. The company does not charge to reinvest dividends.
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The Federal Reserve is meeting next week, and several of its own financial tests for reducing asset purchases appear to have been met.
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