Best Stocks for 2016: Stick With Total System Services (TSS) Stock

Editor’s note: This column is part of our Best Stocks for 2016 contest. Louis Navellier’s pick for the contest is Total System Services, Inc.(TSS).

Now that we’ve gotten through the first quarter, shares of Total System Services (TSS) are down modestly, off about 6%. While it’s never fun to start the year off with a loss, I truly expect TSS stock to redeem itself and reclaim the title of top stock.

10BEST2016_final_185x185As a refresher, 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. I selected TSS as my top stock for the Best Stocks contest on the strength of two powerful trends: Improving consumer confidence and increased reliance on credit cards.

TSS: Q1 Developments

For those of you who are tracking TSS, you know that the stock pulled back sharply following its fourth-quarter earnings report in late January. The knee-jerk reaction was caused by a minor earnings miss; Total System Services’ earnings of $0.57 per share missed the mark by $0.03. At the same time, Total System Services posted 12.9% sales growth, beating the consensus estimate by $25 million, or 4%.

While the $0.03 earnings miss knocked TSS down a peg, the stock has been steadily climbing back over the past several weeks. TSS has jumped more than 20% since late January, and I expect it to continue climbing.

For starters, the credit card market is expected to strengthen further in 2016. According to TransUnion, 60-day credit card delinquencies are expected to fall to about 2.1% in 2016, below last year’s rate of 2.5%. The number of credit cards is also expected to climb beyond the 360 million that are currently in circulation now. TransUnion also expects the average American consumer to carry over $5,200 in credit card debt.

On top of this, Total System Services remains a leader of the credit services industry. For the next two quarters, analysts are calling for earnings growth in the low-teens, and sales growth in the mid-single digits. To put this into perspective, this quarter analysts expect the financial sector to post a 7.9% year-over-year drop in earnings.

TSS also recently announced that it is buying TransFirst, a smaller payment technology provider, for $2.35 billion. Once the deal closes, Total System Services will be the sixth-largest merchant acquirer in the country. Management expects the deal to boost adjusted EPS in the low double-digits within the first year.

I must also mention that TSS pays a solid dividend yield of 0.9%, which is rare in the credit services industry. The company just paid a dividend of $0.10 per share, and it’ll likely declare its next dividend in early June. Meanwhile, the stock trades at a reasonable valuation of 16 times forecasted earnings.

For those of you who held TSS through the recent volatility, I apologize that the stock got caught up in the knee-jerk selloff. As we approach the company’s first-quarter report in late April, I expect the stock to continue to recover. My prediction is that when I check back in on TSS at the end of the second quarter, that 6% deficit will have changed in our favor. For those of you who haven’t added the stock yet, and are looking for a bargain, I still consider TSS one of my top stocks for 2016.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily 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.

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