"Socially Responsible Investing (SRI) is no longer relegated to a tiny corner of the investment landscape; indeed, according to the Social Investment Forum, SRI now accounts for $2.7 trillion, up more than 18% since 2005," says Chuck Carlson.
Here, the editor of The DRIP Investor offers five stock that both rank high for their social responsibility and also stand out based on more traditional earnings and valuation analysis.
"The Social Investment Forum estimates that more than one in every 10 dollars under professional management in the U.S. is involved in SRI investing. What is driving the growth in SRI?
"One factor is the increasing numbers of women and younger investors among the investor populace have fueled demand for SRI investments.
"In addition, we see an increased focus on environment, social, and corporate governance issues. Further, widely publicized stories concerning global warming as well as various corporate governance issues, have caused many investors to reconsider how they deploy their investment capital.
Since August, the shares of Paychex Inc. (NASDAQ: PAYX) have dropped from $45 to $33.45. For the most part, the company provides a variety of payroll and human resource services for small and medium size businesses. However, with the slowing economy, investors are getting jittery.
Despite this, Paychex had a reasonable Q3. Revenues increased 9.7% to $532.2 million and earnings were up 13% to $142.5 million, or $0.39 per share.
While its customers are experiencing pain, the fact remains that they still need the kinds of services that Paychex provides. Simply put, the company has built a solid recurring revenue generator based on a competitive offering, which has kept up with players like ADP (NYSE: ADP). Keep in mind that Paychex has achieved its 18th consecutive year of record revenue and earnings growth.
Yes, Paychex admits that things are tougher (that is, with the macroeconomic environment). For example, the selling season has been difficult and there's been an uptick in business failures, especially in the construction and mortgage sectors.
Although, Paychex still has a fairly diversified customer base, which counts about 570,000 clients. And based on prior economic downturns, the company has been able to deal with the problems and grow through them.
MOST NOTEWORTHY: World Wrestling, Novo Nordisk and Nestle were today's noteworthy downgrades:
B. Riley downgraded shares of World Wrestling Entertainment (NYSE: WWE) to Neutral from Buy on valuation with the stock only 1% below their target price. However, B. Riley admits shares may move higher during the next 30-35 days, due to the upcoming WrestleMania event in Orlando, FL.
Novo Nordisk (NYSE: NVO) was downgraded to Neutral from Buy at Merrill on valuation and a lack of near-term catalysts; shares were also lowered to Peer Perform from Outperform at Bear Stearns.
ING lowered Nestle (OTC: NSRGY) to Hold from Buy as they expect organic growth to slow in 2008.
OTHER DOWNGRADES:
Banc of America downgraded Paychex (NASDAQ: PAYX) to Neutral from Buy.
HSBC downgraded Repsol SA (NYSE: REP) to Neutral from Overweight.
Del Monte Foods (NYSE: DLM) was downgraded to Market Perform from Outperform at Wachovia.
MOST NOTEWORTHY: Brocade Communications Systems, Inc (BRCD), AT&T Inc (T), DaimlerChrysler (DCX), AMR Corp (AMR) and Continental Airlines, Inc (CAL) were today's more noteworthy upgrades:
JP Morgan upgrade shares of Brocade Communications Systems, Inc (NASDAQ: BRCD) to Overweight from Neutral, citing positive trends in networked storage; shares were also added to the firm's Focus List.
Matrix believes improving product mix and demand for new products is driving strong fundamental trends in AT&T (NYSE: T). Matrix upgraded T shares to Strong Buy from Buy and sees upside to their intrinsic value of $56.
Bernstein believes the divestiture of Chrysler from DaimlerChrysler AG (NYSE: DCX) is a positive for the company and upgraded shares to Outperform from Market Perform.
Soleil upgraded shares of AMR Corp (NYSE: AMR) to Buy from Hold on valuation and Continental Air Lines Inc (NYSE: CAL) to Hold from Sell based on a more constructive industry outlook...
OTHER UPGRADES:
Morgan Stanley upgraded NTT DoCoMo, Inc (NYSE: DCM) to Overweight from Equal-Weight.
Payroll accounting firm Paychex Inc. (NASDAQ: PAYX) last week released third-quarter earnings of $0.35 per share, exactly what analysts had estimated. Revenue increased 12.7% to $485.3 million, due mainly to a 25% increase in human resource services revenue. Profits rose 11% to over $126 million, or $0.33 per share, as compared to 3Q last year of $114.5 million, or $0.30 per share. Paychex's earnings, to the tune of $0.02 per share, were hit by a $13 million litigation set-aside that the company stated would not need to be repeated.
With earnings coming in around what analysts had expected and HR services forecast to grow by at least double digits, why then are analysts evenly divided about this stock? Why has it lost 4% of its value in the last month? The stock lost even more ground on this earnings report and yesterday it closed at $37.89, down an additional $0.02 per share. Paychex currently has over half a million clients, second only to ADP in payroll processing services.
MOST NOTEWORTHY: Insituform Technologies, Inc (INSU), Ameristar Casinos, Inc (ASCA) and Christopher & Banks Corp (CBK) were some of today's more noteworthy downgrades:
Canaccord Adams downgraded shares of Insituform Technologies (NASDAQ: INSU) to Underweight from Neutral following the company's reduced outlook and announcement to exit the tunneling business.
Prudential downgraded shares of Ameristar Casinos (NASDAQ: ASCA) to Underweight from Neutral on valuation following the recent run-up due to speculation the company will be sold; based on management statements, Prudential believes a company sale is unlikely.
ABN AMRO downgraded shares of British Airways plc (NYSE: BAB) to Sell from Hold as the firm believes profits on trans-Atlantic routes may drop from increased competition due to the "open skies" agreement between the European Union and the U.S.
On Wall Street, there are earnings reports, and then there are earnings reports that also serve as "data points of significance."
The "of significance" being, of course, the broader economy, and Paychex (NYSE: PAYX)'s Q3 earnings report Wednesday is an example of the latter.
Paychex reported Q3 EPS of 35c, which was in-line with the Reuters consensus estimate of 35c. PAYX also reported Q3 revenue of $485.3 million, which was slightly below the Reuters estimate of $488.3M.
In general, Wall Street responded favorably to the report, with Citigroup saying it still expects Paychex to generate 15%-16% growth in earnings in 2007; the bank also maintained its Buy rating and $49 target.
The Wall Street Journal (subscription required) reported that Microsoft Corp (NASDAQ: MSFT) has been ordered to pay $1.52B to Alcatel-Lucent (NYSE: ALU) for infringing patents on a fundamental technology for digital music.
According to the Wall Street Journal's"Heard on the Street" column, shares of India's two largest private sector banking companies, Icici Bank Ltd. (NYSE: IBN) and HDFC Bank (NYSE: HDB), have tripled over the past three years. However, some investors are getting cautious on the stocks as India's central bank has taken tougher steps to rein in lending growth and stanch inflation.
Barron's Online's (subscription required) "Weekday Trader" suggested investing in companies with modest dividend yields, but a strong cash position and business model, such as outsourcing player Paychex, Inc. (NASDAQ: PAYX), fast-food giant McDonald's Corp. (NYSE: MCD) and insurer Prudential Financial, Inc. (NYSE: PRU).
OTHER PAPERS:
According to German website Heise Online, Apple Inc (NASDAQ: AAPL) will exhibit at CeBIT, the European version of the CES expo, from March 15 through the 21. Apple will be exhibiting the iPhone, said the site. However, according to German website Computerwoche, Apple has denied that it is participating in CeBIT. (Both links in German)
Business Week's "Inside Wall Street" column mentioned UnitedHealth (NYSE: UNH), Epix (NASDAQ: EPIX) and LJ International (NASDAQ: JADE) positively.
Warren Buffet has stirred up interest in UnitedHealth by reportedly buying one million shares in the company.
Small biotech Epix, which recently signed a deal with GlaxoSmithKline (NYSE: GSK), could double within a year, believe some experts.
LJ International, which has already risen from slightly over $4 to over $11 since December, may still have room to rise, according to Albert Lee of Maxim Group, who has a $12 price target on the stock.
Investor's Business Daily's"New America" column highlighted Spartan Stores (NASDAQ: SPTN), the 10th largest grocery distributor in the U.S., which has seen earnings growth in double and triple digits for nine of the past ten quarters.
Paychex (NASDAQ:PAYX) provides payroll and human resource outsourcing solutions to small and midsized businesses. The company processes such data for more than 540,000 clients.
The firm pleased Wall Street late last month when it announced solid Q2 results and reaffirmed Y07 numbers. The CEO cited particularly growth in human resource service revenues for success. Lehman Brothers subsequently reiterated its "overweight" rating on the stock and boosted its price target to $46.
The news kept PAYX shares cycling through a positive three-month trading channel. The price is currently consolidating near the base of that channel, where stochastic and MACD technical parameters suggest the potential for a rise back toward the top. The approximate correspondence of the stock's 50-day moving average to the base of the channel backs the rebound notion.
Altogether, brokers recommend the issue with six "strong buys", six "buys" and thirteen "holds". Analysts see a fifteen percent average annual growth rate, through the next five years. The PAYX Sales Growth rate (13.79%), Operating Margin (39.03%), Net Profit Margin (28.29%), Return on Assets (10.11%), Return on Investment (29.16%) and Return on Equity (30.16%) compare favorably with industry, sector and S&P 500 averages.
PAYX is one of the issues used to calculate the S&P 500 Index. Institutional investors hold about 64 percent of the outstanding shares. Over the past 52 weeks, the stock has traded between $32.98 and $42.37. A stop-loss of $34.60 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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base of that channel, where stochastic and MACD technical parameters suggest the potential for a rise back toward the top. The approximate correspondence of the stock's 50-day moving average to the base of the channel backs the rebound notion.
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