Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Correct into Bitcoin Happy Thanks Halving - Earnings Season Buying Opps - 4th July 24
24 Hours Until Clown Rishi Sunak is Booted Out of Number 10 - UIK General Election 2024 - 4th July 24
Clown Rishi Delivers Tory Election Bloodbath, Labour 400+ Seat Landslide - 1st July 24
Bitcoin Happy Thanks Halving - Crypto's Exist Strategy - 30th June 24
Is a China-Taiwan Conflict Likely? Watch the Region's Stock Market Indexes - 30th June 24
Gold Mining Stocks Record Quarter - 30th June 24
Could Low PCE Inflation Take Gold to the Moon? - 30th June 24
UK General Election 2024 Result Forecast - 26th June 24
AI Stocks Portfolio Accumulate and Distribute - 26th June 24
Gold Stocks Reloading - 26th June 24
Gold Price Completely Unsurprising Reversal and Next Steps - 26th June 24
Inflation – How It Started And Where We Are Now - 26th June 24
Can Stock Market Bad Breadth Be Good? - 26th June 24
How to Capitalise on the Robots - 20th June 24
Bitcoin, Gold, and Copper Paint a Coherent Picture - 20th June 24
Why a Dow Stock Market Peak Will Boost Silver - 20th June 24
QI Group: Leading With Integrity and Impactful Initiatives - 20th June 24
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Jim Rogers Says Buy These Stocks

Companies / Investing 2009 Jan 20, 2009 - 12:04 AM GMT

By: Q1_Publishing

Companies

Best Financial Markets Analysis Article“Historically, the way you make money in times like these is that you find things where the fundamentals are unimpaired.” – Jim Rogers

That sounds easy enough, right? Just find unimpaired companies, buy them, and wait. In essence, there couldn't be better advice right now.


Of course, the question then is, “When should I buy unimpaired assets and businesses?”

For instance, Google (NASDAQ:GOOG) is going to be a mainstay on the Internet for years to come. Its market share is growing and its competition is fading.

And it's making all the right moves during a downturn. It's cutting expenses. It's socking away cash (as much as $1 billion a quarter) and getting ready to deploy it when opportunities arise (there aren't going to be any bailouts for dot-coms, so market share will go to the best companies, not the best-connected companies). It's not senselessly buying back shares either to keep management's stock options more valuable at the expense of the shareholders.

Google's making all the right moves to thrive when the global economy does recover. The company is the very definition of unimpaired. Even though Google shares are off more than 60%, it still has a P/E of 18, pays no dividends, and is valued like a growth stock which, although still growing strong, will grow more slowly over the years.

So it's reasonably valued. Maybe it's a little cheaper than it should be or maybe a little too expensive, but it's not extremely cheap or extremely expensive, which creates low-risk/high-reward trading and investing opportunities.

We've got to be looking for unimpaired assets at impaired prices.

The name of the game is buy low and sell high. Right now, there is an opportunity to buy low in the business process outsourcing (BPO) sector.

The Big Five Four in BPO

To be honest, I've hated BPO for years. BPO is when “non-core” activities like customer service or accounting for a business are outsourced. The masters of BPO are Indian companies which provide basic business services at significantly lower costs.

Remember the other day when we resolved to ask ourselves, “Would I start this business today?” before buying any shares. Six months ago the answer would have been a resounding “NO” when it came to BPO.

It's one of the worst businesses to be in. Workforces were large in order to create decent economies of scale. Costs (mainly employee salaries) increased at a double-digit rate for years as India's economy was growing.

Worst of all, anyone could get in the game. There was no moat. BPOs all provided very similar services and the only way to get more market share was to offer better prices. As a result, margins were pretty low and only getting lower.

India's BPO was dominated by Satyam (NYSE:SAY), Cognizant (NASDAQ:CTSH), Infosys (NASDAQ:INFY), Wipro (NYSE:WIT), and Tata Consultancy Services (TCS – traded in India). They counted more than 40% of the Fortune 500 companies as customers.

There wasn't much room for competition. They would battle it out for customers and undercut each others' prices just to get a contract. It was great for customers, but bad for all these businesses. All that changed a few days ago.

The Enron of India

On January 12, Satyam reported it cooked the books to the tune of about $1 billion. It was never there to begin with. Satyam's chairman (who is sitting in Indian prison right now) basically said it was all a ruse and it started out as something small and grew right along with the company.

It's all over for Satyam now. After all, if you were a CFO at a Fortune 500 company why would you want to have a company which is being touted as the “Enron of India” to manage your accounting?

It doesn't make any sense. And a few of Satyam's customers already started to leave. State Farm Insurance announced it was leaving and other key customers could soon follow.

Satyam has between $350 million and $500 million in contracts which are up for renewal this year. That works out to between 15% and 20% of all revenue. Among the key customers who could be on their way out are Telstra, General Electric, Qantas, and DuPont. I'd be willing to bet there are plenty customers on their way out soon enough.

BPO: Zero Sum Game

Here's the thing about BPOs, they're just like any other commodity. When a company leaves one, it usually moves to a competitor.

In other words, what's bad for Satyam is good for Wipro, Infosys, and TCS. They're going to get handed market share in a business where you have to offer hefty discounts to lure customers away from competition. It's a fantastic time to be in India's BPO market…as long as you're not Satyam.

It's already started to happen. In a recent interview, TCS's COO, Mr. Chandrasekaran said, “We are not in talks with any of their clients actively. Are any of their clients calling us? They are calling us, definitely.”

The Rebound in BPO

Here's the thing. India's BPO industry was rocked by scandal. Satyam has wiped away more than $5 billion in market value out of investors' pockets. Satyam is clearly impaired . The rest of the BPO market is not. In fact, the rest of them will actually benefit from Satyam's problems.

Despite the “good” news for Satyam competitors, they haven't been rewarded by investors…yet. Wipro shares are off 10% since Satyam's announcement. Infosys and Cognizant shares are up 1% and down 5% respectively over the same time period.

It doesn't make much sense. Imagine if Airbus announced an accounting fraud, half the orders for its planes were cancelled, and it could go into bankruptcy. What would that do to Boeing's (NYSE:BA) business? Or if SAP (NYSE:SAP) was about to be brought down by a major scandal. What would happen to Oracle's business?

The same thing, to a lesser extent, is happening in the BPO sector.

Any way you look at it, as we've been saying in our 100% Free e-Letter, the Prosperity Dispatch , India is going to be one of the best places to have your money over the next five, ten, and 50 years. The combination of a young population, a good (and getting better) education system, and a reasonably moderate political system, it's probably one of the most unimpaired countries in the world. It's just a matter of finding the right opportunities at the right times. Right now is likely one of those times – for India's BPO industry at least.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in