Everyone has heard the saying “cash is king,” but with interest rates as low as they are nowadays, it won’t be long before we’re all saying “credit is king.” Here’s why:
According to Nielsen, U.S. consumer confidence is at a 10-year high, and consumer spending is clearly driving the economic recovery. The University of Michigan also found that Americans are more optimistic about their financial future than at any time in the past eight years. At the same time, actual wage growth has been sluggish at best. In order to make up for the shortfall between expectations and reality, Americans will continue to rely heavily on credit cards in 2016.
Enter the opportunity in Total System Services (TSS), one of the world’s leading electronic payment processing firms. In layman’s terms, Total System Services works with financial institutions around the world to issue credit and debit cards, expand the network of merchants who accept these cards and provide corporate payroll cards to employees. If you use a MasterCard or Visa, there’s a good chance that Total System Services helped to make your purchases possible. Total System Services is also working hand-in-hand with Apple Inc. (AAPL) to get Apple Pay off the ground in the U.K.
I like Total System Services because after 30 years in the business it is still a largely domestic company. While it operates in Europe, North America and parts of Asia, the U.S. accounts for more than 80% of total annual revenue. This is crucial, because I expect the dollar’s relative strength to continue in 2016. TSS has limited exposure to unfavorable exchange rates, so it will continue to grow sales and earnings while its competitors struggle.
For fiscal 2016, analysts expect Total System Services to grow sales by 6.8% and earnings by 8.5%. While that may not seem like much to rave about, I expect the firm to do much better. First, Total System Services has a tremendous track record of beating analyst expectations. Last quarter, the firm topped the consensus earnings per share estimate by 32.2%.
And looking ahead to 2016, the consensus EPS estimate keeps rising. In the past two months alone, analysts have hiked up their estimates by 5.1%. These kinds of upward revisions show that analysts are struggling to get a handle on the company’s profit potential.
If you need further proof that TSS stock is an excellent buy for 2016, simply visit my Portfolio Grader stock rating tool. When you plug TSS in, you can see that the stock earns straight As on earnings growth, earnings surprises, analyst earnings revisions and return on equity. TSS also earns Bs on sales growth, operating margin growth, earnings momentum and cash flow, earning it a B for its overall Fundamental Grade. However, institutional buying pressure for TSS is quite strong, so the stock earns an A for its Quantitative Grade.
Total System Services is also one of just a handful of credit services companies that pays a dividend. The firm has a solid dividend history, having paid a dividend consistently since 1992. At current prices, TSS has an annual dividend yield of 0.8%. Total System Services will likely declare its next dividend in late February.
To sum it up, TSS has a lot going for it. It naturally benefits from several U.S. economic trends, including low interest rates, increasing consumer confidence and slow wage growth. It has most of its business in the U.S., which limits its exposure to foreign currency headwinds. It has decent growth prospects and a history of beating expectations. Finally, it has a solid dividend, which is always a bonus. In this uncertain environment, TSS is just the kind of conservative stock that I feel comfortable owning in 2016.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.