2 Cash-Rich Computer Services Companies To Consider Now

Includes: CVG, IAC
by: Bret Jensen

The stock market rally is starting to feel a bit long in the tooth to me and I am being more cautious deploying new money into the market than I was a few months ago. That being said, opportunities are still present in the market albeit harder to find these days. Here are two cash-rich, computer services companies that are worth a look.

IAC/InterActiveCorp (IACI) - "IAC/InterActiveCorp engages in the Internet business in the United States and internationally. The company operates in four segments: Search, Match, ServiceMagic, and Media and Other". (Business Description from Yahoo Finance)

4 reasons IACI is cheap at $42 a share:

  • The company has a pristine balance sheet with almost $10 a share in net cash on the books so the stock is cheaper than it appears at first glance.
  • The consensus earnings estimates for FY2011 and FY2012 have risen significantly over the past three months and the stock has a five-year projected PEG of just .55.
  • IACI is showing sharply increasing earnings. It made $.83 in FY2010, is expected to book $2.12 in FY2011 and analysts have it pegged for 2.60 in EPS in FY2012.
  • Canaccord Genuity recently initiated the stock with a "buy" rating and Credit Suisse has an "outperform" rating and a $52 price target on the stock.

Convergys Corporation (NYSE:CVG) - "Convergys Corporation provides relationship management solutions worldwide. It operates in two segments, Customer Management and Information Management". (Business Description from Yahoo Finance)

4 reasons Convergys is a buy at $13 a share:

  • CVG has a solid balance sheet with almost $3 a share in net cash.
  • The stock is cheap at just 10% over book value and 69% of revenues.
  • Management raised FY2011 revenue guidance at last earnings report noting stabilized demand
  • Both consensus analysts' price target and Credit Suisse target are at $16 a share. CVG also goes for just over 9 times operating cash flow.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IACI over the next 72 hours.