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Recent Winners: Three Firms that are More Profitable
Than Microsoft |
Published:
April 20,
2007
In April 2006, StreetAuthority co-founder Paul Tracy wrote
an interesting article in his premium newsletter -- the
StreetAuthority Market Advisor (Learn
More). In it, he explored some of the world's most profitable
companies. Specifically, he pinpointed a handful of firms with stronger
profit margins than Microsoft -- long considered a standard
against which all other companies are judged.Given its near monopoly
status as a global provider of the critical software needed to run PCs,
Microsoft has enjoyed whopping operating margins in excess of 40% over
the past decade -- not to mention copious free cash flows (FCF) and
superior returns on equity (ROE). Not surprisingly, the stock has
rewarded shareholders richly over the years, skyrocketing from a
split-adjusted price of just $0.57 in 1990 to recent highs of around $30
per share -- a gain of over +6,000%.
However, as Microsoft grew larger and larger, its growth
began to slow. As a result, in recent years the stock has
trended sideways, and savvy growth investors have started to
look elsewhere in search of better returns.
With this in mind, in April 2006, StreetAuthority co-founder
Paul Tracy went on a quest to find the "next Microsoft." In the
process, he spent countless hours researching smaller,
faster-growing companies with even greater profit margins than
the software giant. One of the promising firms he uncovered was
the Chicago Mercantile Exchange (NYSE: CME) -- the world's
largest electronic marketplace for trading futures contracts on
interest rates, stock indexes, commodities, and other products.
Last April, Paul noted that with operating margins in excess
of 60%, CME ranked as "one of the most profitable companies in
the world." He also called readers' attention to the explosive
growth of futures trading and suggested that trading volume on
the Chicago Mercantile Exchange could "ramp higher" in the year
ahead. That call proved to be on the mark. Just last month, the
company announced that it had set quarterly volume records in
every single product line, totaling a staggering 6.5 million
contracts traded per day -- a robust +30% growth rate from the
same period last year.
Paul also hinted that an acquisition was possible, and that
proved to be prescient as well (though the target firm may have
been closer to home than expected). Within months, the company
announced the blockbuster takeover of its cross-town rival
Chicago Board of Trade, a move that would give the combined
company a dominant 85% share of the domestic market for
exchange-traded futures. This deal has not yet closed, but
either way the future remains bright for the Chicago Merc.
In the meantime, Wall Street has responded enthusiastically
to the firm's recent growth, pushing shares of CME up from $447
to over
$550
per share over the past year. That translates into a quick gain
of
nearly +25%
for subscribers to Paul Tracy's premium StreetAuthority
Market Advisor service.
What Are Some of Today's Most Profitable Companies?
Of course, the Chicago Mercantile Exchange isn't the only
fast-growing firm that is delivering enormous profit margins. In
recent months, Paul Tracy and his research staff have identified
several other stocks that are delivering "monopoly-like" profits
for shareholders. These include...
A Warren Buffett Favorite --
With steady +15% annual growth and 54% operating margins, this
stock has been a longtime favorite of investing legend Warren
Buffett.
Little-Known Brokerage Firm -- By
focusing on the needs of high-volume options traders, this tiny
retail broker has built an intensely loyal (and highly
profitable) customer base. And thanks to low capital spending
requirements, it enjoys operating margins of 67%, making it even
more profitable than the Chicago Mercantile Exchange.
To learn the names and ticker symbols of these high-margin
winners, you'll need to subscribe to Paul's premium investing
newsletter -- the StreetAuthority Market Advisor.
Good investing!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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