"Software giant Adobe Systems (NASDAQ: ADBE) has joined our model Growth Portfolio," says Stephen Leeb. Here's his assessment of the tech firm in The Complete Investor.
"When it comes to investing in tech, perhaps the most difficult task is to find one with a bona fide franchise, i.e., an ironclad grip on its market that keeps it largely immune to competition.
"Adobe -- also known as 'the PDF company' -- fits the bill. As most computer users know, PDF files are ones that you can read but can't change in any way-the content is controlled solely by the file's creator.
"PDF files are ubiquitous on the Web and essential to a wide range of companies that publish online, from newspapers to book publishers to manufacturers that offer product manuals and so on.
"To read a PDF file, anyone who owns a computer can download a version of Adobe Acrobat without paying a cent-it's 'freeware.' The companies that create the PDF files, however, have to pay Adobe for the necessary software.
"This is a huge source of revenues for Adobe, with no end in sight: as long as the Internet continues to grow, Adobe's products-which have virtually no competition-will remain in strong and growing demand.
"Note, however, that while over the long term we expect growth of at least 15%, there will be interruptions. Even Web developers and publishers can be affected by tech crashes and credit crunches. And 2009, as was the case in 2002, is likely to be a down year.
"That explains why the stock, which has a free cash flow yield of around 10%, currently trades at a historically low multiple. Franchises of this ilk don't get much cheaper in any market.
"Over the next three years this stock could double or more. We rate the company as a medium risk buy."
Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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