Spun off from Dun & Bradstreet a decade ago, Cognizant is a core long-term holding in the Indian IT services sector and the company best-positioned to profit from offshoring during the coming five years. Among its 67 strategic partners, Cognizant now counts seven of the world’s top pharmaceutical companies and three of America’s top five healthcare organizations. With more than 25,000 employees, Cognizant’s sales offices are located throughout the developed world, while its development centers are spread throughout high-tech centers in India like Calcutta, Pune, Hyderabad and Bangalore. In the past five years, sales have leapt 44% annually, and the stock price more than matched that pace.
Here’s why we think Cognizant will continue to generate rich profits for Global Bull Market Alert subscribers:
First, the product cycle is strengthening due to technology relating to 3G, SOA software infrastructure, Microsoft’s upcoming release of Vista operating system, and new storage solutions. This demand is expected to be supplemented by related vertical markets including communications, business services and health care.
Second, Cognizant is on a growth path that has allowed it to consistently beat both earnings and revenue estimates. Full-year revenue was up 51% from 2004, and it’s set to comfortably surpass $1.25 billion in 2006. The company went on a hiring blitz last year, and by the end of 2006, Cognizant will have more than 34,500 employees, the bulk of whom are located in low-cost India. The company is expected to grow at a rate of well over 30% per annum over the next three to five years. Despite having a forward P/E of 38, Cognizant has a PEG ratio (a formula that compares earnings growth to the P/E ratio) of just over 1.2 — very reasonable for a tech company of its size and growth prospects.
Finally, Cognizant has gathered more accolades than any of its competitors. It was recently named one of Forbes’ Best Small Companies in America for the fourth consecutive year, and ranked among the top information technology companies in Business Week’s Hot Growth Companies. Institutional Investor magazine named Cognizant one of the most shareholder-friendly companies in America.
So buy Cognizant (CTSH) at market today, placing your stop at $47.20. If you want to play the options for bigger upside, buy the July $60 calls (UPUGL.X).
PORTFOLIO UPDATE
To make room for CTSH, let’s sell long-term holding America Movil (AMX) for a 38% gain on the stock and an 81% gain on the remaining options. The long-term prospects of this company are terrific, but we’re always looking for the quickest, fastest profits for our subscribers.
You took quick profits of 70% in last week’s pick GOL’s options within two days of our recommendation. Over the weekend, GOL announced that it is issuing debt to support its further expansion, so hold on to this one.
Copper futures closed at an all-time high Friday, posting a gain of nearly 7% for the week. That bodes well for our copper holding PCU.
