Penn Wealth Publishing

2015.06.14 Journal of Wealth & Success Vol 3 Issue 23

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12 wealth & success volume 3 issue 23 June 14, 2015 wealth & success Copyright 2015. All Rights Reserved. investment intelligence Business Equipment ACCO Brands Corp. Buy a company that makes paper clips? Have we lost our minds? Shortly after the turn of the 20th century, Fred Kline had a million dollar idea. The year was 1903, and Fred noticed that his fellow New York office workers were having a heck of a time keeping documents together without putting them in a folder. He set out to make one product that had just been patented four years prior—the paper clip. Through his Clipper Manufacturing Company, Fred turned out billions of the little wire devices. Seven years later, in 1910, he changed the firm's name to the "American Clip Company" (or ACCO) and invented a new product known as the ACCO Fastener. Fred's little venture was so success- ful that he established British and Canadian subsidiaries. Over the next century, ACCO was on an invention and acquisition tear, acquiring such companies as Mead and Westab, inventor of the spiral notebook. Today, the com- pany operates in more than 100 countries around the world and is home to more than 20 top brands, such as Swingline®, AT-A-GLANCE®, Day Runner®, Mead®, Five Star®, and numerous other well-known names. You have almost certainly used the ACCO Fastener, but probably didn't know its name. When your kids or grandkids buy school supplies, you can bet that the bag is full of ACCO products. Seems like old-school (no pun intended), why do I want to own them? Let's take a mental journey back to March of 2000. Some of the hottest funds being pitched to investment bro- kers and retail investors had terms like "new economy" or "Internet technology" in their names. We were told that there was a paradigm shift going on, the likes of which the world had never seen. Old technology was dead. Long live new technology. Within 24 months, many investors had seen their portfolios lose 50% or more of their value. It had also been implied that earnings were not that important anymore (AOL had a P/E of 300); only future growth mattered. That was as dangerous a concept then as it is now. Take a look at the five-year operating income chart on ACCO. The business equipment industry may consist of a lot of old-school manufacturers, but it is also one of our most-liked categories right now. Think you cannot find value in the market right now? How does P/E of 9.7 sound? (Netflix has a current P/E of 151, by the way.) Despite the company's wide range of more traditional office supplies, it also designs, sources, distributes, and markets accessories for cellphones, tablets, laptops, and desktop computers. Under the Kensington, Microsaver, and ClickSafe brands, its digital product lineup includes security software, input devices, carrying cases, docking stations, charging racks, and power adapters. We also strongly like the company's presence or out- right dominance in many of the world's developing markets, like Brazil. With a growing white-collar class of workers, these markets should provide a strong growth platform for ACCO. We purchased the shares at $7.82 in the Intrepid Trading Platform, with a target price of $10 per share. With a market cap of just $867 million, we believe the company is capable of strong growth in up-cycles, with relative sta- bility during market downturns, based on its product base. The content of this report reflects the personal views, opinions, and recommenda- tions of the individuals at Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. Suitable for the Intrepid Trading Platform What is Operating incOme? Operating income, or "regular revenue," or "operat- ing revenue," is income from the actual sale of goods and services that the company is in business to produce. It does not include one-offs, like the sale of a company building or some other anomaly or one-time event. By examining a company's regular revenue, an investor can often gain meaningful insights into the health of a business, especially since fading companies (Eddie Lampert at Sears, anyone?) often sell underperforming stores or other assets to raise cash, making the income statement look more attractive than it might otherwise be. Operating revenue is not the same as operating profit, which is the more commonly used metric in financial statement analysis. Be careful when read- ing those quarterly or annual financial statements!

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