On Monday, U.S. stocks took another punch to the groin – courtesy of Europe. All the major U.S. indexes opened the new trading week down by more than 1%, as the herd panicked over renewed fears “of a full-fledged Spanish bailout and a Greek exit from the euro,” according to MarketWatch.
Can somebody please tell me how that’s really news? We’ve been dealing with euro crisis headlines – and the threat of a Greek exit – for almost three years now. I guess famed value investor, Benjamin Graham, was right when he said, “It requires considerable willpower to keep from following the herd.”
In this instance, though, it’s imperative! Obsessing over the latest rehashed headlines concerning Europe won’t increase our net worth. It’ll only make us a nervous wreck. Instead, like I told WSD Insider on Monday, we need to focus on individual earnings reports coming out of U.S. companies. (Click here to read the article in its entirety.) After all, earnings are what ultimately drive stock prices. Not fear mongering in the headlines. And believe it or not, it is possible to find stocks immune to the euro slowdown.
Here’s proof – along with a specific opportunity to profit.
Yes, We’re Still in a Stock Picker’s Market
With the common perception that the world is doomed because of Europe, you’d think stocks would be falling in unison across the board. But that’s not the case. I say that based on the number of “all or nothing” days we’ve experienced in 2012.
An “all or nothing” day is when at least 400 stocks in the S&P 500 all move up or down in price. In 2011, we witnessed a record number of these days (70). But seven months into 2012, we’ve only experienced 20, according to Bespoke Investment Group. And at the current pace, we’re on track for the lowest amount of “all or nothing” days since 2007.
Simply put, we’re in a stock picker’s market! So, right now, the key to investing success boils down to finding stocks with solid underlying fundamentals, largely immune to the euro crisis.
I previously shared that the financial and telecom sectors were prime hunting ground for such opportunities. Why? Because, as you’ll recall, the average company in each sector books the majority of sales in the United States. While the same generalization can’t be made about the technology sector, there are individual tech companies with strong fundamentals and little to no exposure to Europe. Like CSG Systems International (NASDAQ:CSGS).
Based in Englewood, Colorado, CSG Systems provides critical back office services to telecommunication, broadband and direct broadcast satellite companies. Its software handles things like order management, account setup, sales support, billing and invoice production.
The good news is that the company derives 85% of its sales from North America. The result? Over the last three years the company’s increased revenue by an average of 15.9%, which is double the industry average.
The lack of European exposure translates into very tangible benefits for shareholders, too. Take a look:
As concerns over the eurozone mounted, the stock ignored them, climbing about 12% higher. Meanwhile, the S&P 500 is down about 5% since its peak on April 2. Don’t let the rally fool you, though. The stock’s still cheap. In fact, it trades at a 44% discount to the S&P 500 Index, based on forward price-to-earnings (P/E) ratios. Management clearly thinks so, too. In the last quarter, it repurchased $5.2 million worth of stock for an average price of $15.84.
Bottom line: CSG Systems is set to report earnings on August 7. Given the company’s strong growth profile and limited exposure to Europe, our portfolios would be well served by accumulating shares on any dips before then. No matter what’s going on in Europe.