Why I'm Keeping a Close Eye on Automatic Data Processing

In the midst of this market sell off there are several stocks that have surpased their 52- week low, or are bumping off that low. With a constant eye on my watch list, this is one of the stocks which has drawn my focus:

Automatic Data Processing (ADP)

For those of you who aren't familiar with ADP, it might be the people who pay you every two weeks. ADP is a provider of business outsourcing solutions. The company you work for may outsource its payroll or even its tax and benefits administration to ADP. It is also a leading provider of integrated computing solutions to several vehicle dealers throughout the world. These are businesses with very predictable cash flow, and high barriers to entry. Each of the markets and businesses that ADP operates in, globally and in the United States, are expected to grow quickly over the next several years.

ADP has been growing very quickly over the past few years and is expected to continue that growth going forward. Earnings growth in the high teens are a regular occurance for this firm, and its dividend growth has followed suit. ADP has paid dividends since 1974, and its dividend growth has been very solid. The dividend has actually doubled since 2004, and its latest increase was a very strong 26%.

Valuation

The stock is currently sitting at a multi year low of $37.91. From a technical perspective though, the stock chart looks scary as it seems to have broken dow to uncharted territory. The last time this stock looked this good was back in 2003 when it traded down to $32. ADP has traditionally always demanded a premium P/E, which I believe is warranted due to the company's market position, high growth rate, strong return on equity, and low debt.

I have my eye on this one as I believe the fear of many jobless Americans has investors selling this one hand over fist. The opportune time to buy into ADP is when fears of a high unemployment rate loom. The current P/E of around 19x marks a 10-year low level. The stock is yielding 3% which is unheard of for ADP shares as well. I always get really interested when I see a big recent dividend raise coupled with a low stock price.