Anyone who reads my articles understands that I do not suggest basing investment decisions (or any single-stock trade for that matter) on analyst ratings. However, after some basic research, I have found two companies which show strong fundamentals, solid performance and ultimately, a sense of comfort knowing there are still companies with competent management teams, who make sound business decisions, and provide their clients with quality service. When investing, understanding the 'bread and butter' of the companies you are researching is essential. The numbers assist you as a confirmation/contradiction of whatever inclination you may have, but being able to make the distinction between hype (due to a rating or fair-value change) and an accurate assessment of value is only possible by following a company on its path to success. Watching it perform, stumble, and recover (like Chipotle - CMG); or reading of the recognition and rewards of its efforts and quality work and innovation (like CGI Group - GIB). These two companies, although not perfect, deserve to be on everyone's alert feed - and possibly everyone's portfolio. But I will let you be the judge:
April 14, 2013 - UPGRADES
CGI Group, Inc. (GIB)
This large-growth company provides information technology services (IT) and business process services in Canada, the United States, India, Europe, and the Asia Pacific. This stock has experienced high trading volume of 264,281shares on 4/15/2013 following the rating upgrade by RBC; its average daily volume over the previous 30 days was 181,450 shares. The firm has capitalized on strong industry tailwinds, as more companies started outsourcing their noncore business operations. However, according to Morningstar Analysis, "Its service offerings aren't different from other IT services firms', and it hasn't built any long-term strategic advantages, leaving it with no economic moat around its business". In addition, as of September 2012, accounts receivable grew by 157% year-over-year ($1,272M vs. $495M); a troubling figure as it indicates the portion of revenue not yet received. But I must add that revenue in Q1-2013 reportedly increased by 148%.
I believe the upgrade in rating and strong current recommendation trends are due to a few fundamental factors:
1) The company has been cash flow positive for a consecutive 5 years. Free cash flow increased by over 105% (505M in 2012 from 246M in 2008).
2) As reported in an article by Kapitall, Net institutional purchases in the 1st Quarter 2013 are at 45.3M shares (about 22.62% of the company's float of 200.23M shares); clear indication of institutional interest (such as hedge funds).
3) Over the last year, a series of deals, partnerships and awards that have placed CGI Group in a perceived positive light (Which contradicts Morningstar's analysis):
· 3/20/12 - Comark Extends IT Outsourcing Agreement With CGI for 6 Years
· 4/15/12 - CGI Reports Strong Financial Performance in First Half of Fiscal 2012
· 5/2/12 - Ohio Bureau of Workers' Compensation Selects CGI to Replace Legacy Systems With Integrated Claims, Policy Management and Billing Solution
· 5/16/12 - RSA Renews IT Services Agreement With CGI for 6 Years
· 5/30/12 - U.S. Agency for International Development Selects CGI to Help Advance its Worldwide IT Innovation Initiatives
· 12/18/12 - CGI to Operate City of Norfolk's ERP System in the Cloud
· 12/20/12 - U.S. Railroad Retirement Board Awards CGI US$21 Million Contract to Transition its Financial System to the Momentum(R) Community Cloud
· 1/8/13 - CGI Selected for US$7 Billion Multiple-Award ID/IQ to Deliver Software and Systems Engineering to the U.S. Army Communications-Electronics Command
· 1/9/13 - Alecta Renews Outsourcing Agreement With CGI
· 1/14/13 - CGI refreshes its brand to reflect its expanded global presence and service offering
· 1/15/13 - Insurance company LahiTapiola and CGI to establish a new company in Finland
· 1/17/13 - The Norwegian Courts Administration extends contract with CGI to 2016
· 1/24/13 - County of Ventura selects CGI to modernize its financial, budgeting and procurement systems with CGI Advantage ERP
· 1/29/13 - Hawaii Health Connector selects CGI to construct online marketplace for state-based health insurance exchange
· 1/30/13 - CGI posts 148% revenue growth in Q1
· 2/11/13 - CGI expands its partnership with BRP for 10 years
· 2/13/13 - Foresters extends long-term managed services contract with CGI through to 2023
· 2/28/13 - CGI's acquisition of Logica earns two 2012 Canadian Dealmakers Awards
· 3/6/13 - Neste Oil and CGI extend IT service agreement to support 5,000 employees (OTCPK:NTOIF)
· 3/6/13 - AT&T and CGI create job opportunities for Texas veterans (NYSE:T)
· 3/7/13 - Vermont selects CGI to deliver state health benefit exchange
· 3/18/13 - CGI named Company of the Year for Government Cloud Solutions by Frost & Sullivan
· 1/24/13 - CGI honoured with two awards at Mercuriades 2013
Data provided by Thomson/First Call
Chipotle Mexican Grill, Inc. (CMG)
Industry volatility has pummeled many restaurant chains over the years. With a fast food attitude, an average bill of $10 and a customizable menu, Chipotle has proven a profitable and growth-oriented firm with huge upside potential. A strong hold sentiment (as seen in the recommendation table below) and an upgrade this week by UBS from Neutral to Buy, confirms my positive outlook for the company. Over the past 3 years the stock price has quadrupled - despite a turbulent and 2012 - which resulted in the consolidation of the stock price. It is only fair to warn those current holders and interested investors (especially bullish), that Q1 earnings may be affected by cost pressures in food, beverage and packaging costs (up 1.3% from Q4-2012). With heavy competition from Taco Bell's new Cantina Menu and disappointing same-store sales growth figures, Chipotle fears a loss in clientele if it passes the rising commodity costs onto its customers. On a positive note, the company's books are strong overall, and looking beyond Q1, Chipotle plans on doing 3 things to improve performance going forward and capture additional share of the market:
(1) Menu price increases are likely to boost same-store sales.
(2) The rollout of Sofritas on a nationwide basis could have a positive impact on overall sales.
(3) Chipotle will expand its catering services, which contribute to its top-line growth.
Data provided by Thomson/First Call
Top 10 Institutional Holders as of 12/31/12 (Net Increase)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.