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. (NYSE:TSS).
If the first half of 2016 has been any indication, now is not the time to swing for the fences. Many of last year’s MVPs — blockbuster biotech companies, high-flying travel stocks and hot retailers — are getting pummeled in 2016.
There are countless reasons for this: Global uncertainty, foreign currency headwinds, multiple compression and even unseasonable weather. And, as another challenging earnings season approaches, there will be more disappointments to come.
So, now is the time to stick with stocks that have a strong batting average in fundamentals. My top pick for 2016, Total System Services, remains an excellent example of this.
As a refresher, TSS 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.
Now that it has acquired competitor TransFirst for $2.35 billion, Total System Services is the sixth-largest merchant acquirer, and the third-largest integrated payments provider in the country. It currently serves 645,000 merchant outlets, processing $117 billion in transactions each year.
This may not sound like the sexiest line of business, but it’s certainly profitable. And, because most of TSS’s business is in the U.S., it has limited exposure to the global headwinds that have been wreaking havoc on the S&P 500’s sales and earnings.
Why TSS Is a Safe Bet
Last quarter, Total System Services delivered 23% adjusted earnings growth and 12% sales growth. Better yet, the payment-processing firm beat analysts’ sales and earnings forecasts by a hefty margin.
On the heels of these strong results, TSS raised its fiscal 2016 earnings outlook to reflect 13% to 16% annual earnings growth and 22% to 24% annual revenue growth. At the beginning of the year, analysts were expecting just single-digit sales and earnings growth. Total System Services is also head and shoulders ahead of the competition, and analysts expect the credit services industry to post 9.5% earnings growth for the current fiscal year.
In the meantime, TSS stock is in great shape for its second-quarter report at the end of July. The consensus estimate is calling for 24.1% annual earnings growth and 65.2% sales growth. And, considering that the consensus earnings per share has risen nearly 11% in recent weeks, Total System Services will likely surpass these expectations.
In addition to its strong fundamentals, TSS 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 stock has an annual dividend yield of 0.8%.
To sum it up, Total System Services has a little bit of everything. It has strong fundamentals, limited exposure to global uncertainty and a solid dividend. In addition, TSS stock trades at a reasonable valuation of 16 times forecasted earnings.
For these reasons, Total System Services has risen 5% year-to-date, outpacing the broader market by more than two-to-one. I see plenty of upside ahead for TSS, so it remains my top stock pick for 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.
