As I mentioned in my original recommendation of Cognizant Technology (NASDAQ: CTSH) as one of the best stocks for 2011, business is changing so fast lately that you have to run twice as fast to stay half as far behind. The tech sector hold many profitable investments because it holds many companies that are crucial to the way we work and play in the 21st century.
Whether it is the 1,000 emails in your inbox a day, buying music by the song rather than the CD or album, subscribing to Netflix (NASDAQ: NFLX) instead of going to the video store or time-shifting all your TV watching on a Tivo (NASDAQ: TIVO) digital video recorder rather than waiting dutifully for the appointed hour, activities that were normal five years ago are laughable now.
Now that’s just you and your mundane consumer habits. What about the companies that are struggling to stay ahead of these changes and adapt faster than their competitors? Deciding what kind of factory to build for use two years from now is incredibly difficult since, for all you know, the products it will make will be obsolete or it will be impossible to persuade enough skilled workers to commute there. And deciding how to staff call centers and branch offices and to create business processes that fit changing life styles are part of the reason that companies have been too paralyzed to hire.
The rapid pace of change has been a gold mine for companies that specialize in helping other companies cope. And it is one of the areas that has helped one of my top picks for 2011, Cognizant Technologies (NASDAQ: CTSH), perform so well. Headquartered in the United States but firmly rooted in India, CTSH has made a fortune for shareholders by offering expert guidance on everything from business processes, combining two companies after a merger, enterprise resource planning, IT infrastructure services, risk management, regulatory compliance — and basically everything that its customers do not feel that they are good at but need to do.
Cognizant is embedded in the many large companies with which it works, taking on a series of short-term projects over a long period, and earning very healthy margins because its work both saves money and is considered irreplaceable. With customers believing that to be successful they have to reassess their business model constantly, it is really in the sweet spot of global change.
The recession of 2008-2009 was surprisingly a boon for Cognizant because it made companies think differently about how they approached staffing and used their real estate. Cognizant has helped create virtual offices across the country at large companies, determining how to use social networking, cloud computing and virtual servers to cut the cost of housing a lot of employees in one building and yet encouraging these remote individuals to interact as if they were in cubicles side by side. The old model of driving to an office and working for eight hours in one place is swiftly becoming obsolete, and Cognizant and its peers are at the forefront of figuring out how to make that happen efficiently, among many other processes that are routine but deep in a company’s soul.
Cognizant reports earnings on Feb. 7 and I expect them to surprise with $0.71 of earnings in the fiscal fourth quarter, which would amount to year-over-year growth of 40%. I also expect around $3.77 in earnings per share in 2012. Put a 25x multiple on that, and you get a target price of $94 by the end of this year, which would be up almost 30% from the current quote. CTSH is still a good buy now.
Check out the other FREE stock picks that make up InvestorPlace.com’s Top 10 Stocks for 2011.
As of this writing, Jon Markman was recommending CTSH to subscribers of his Trader’s Advantage newsletter.
