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01/21/2015 7:00 am EST
Our top speculative pick for 2015 is a leader in the information measurement industry; its trademark ‘Nielsen rating’ is so sought out that it has become the currency of television ad spending, observes Eric Vermulm, editor of Stack Financial Management and InvesTech Market Analyst.
While many people are familiar with the business operated by Nielsen N.V. (NLSN), investors have seemingly overlooked this high quality stock, which has strong growth prospects. NLSN has two main business lines that deliver critically important information to clients.
Buy provides consumer product companies like Coca-Cola and Procter & Gamble insights on product sales volumes and purchasing trends.
Watch measures viewership data for a wide spectrum of media audiences. Both segments have the distinct advantage of providing clients with ‘must have’ measurement data at a relatively small cost.
The indispensable nature of NLSN’s data has created a very loyal and steady client base. The average company has worked with Nielsen for over 30 years, a time frame almost unheard of in modern business.
In addition, approximately 70% of sales are subscription based, providing NLSN a consistent and growing revenue stream.
Nielsen’s competitive position underlies a highly profitable business with strong cash generation and an attractive valuation. Profit margins in the Watch segment exceed 40% while Buy retains nearly 20% of every dollar in sales.
These profitability levels translate into an expected $900 million of free cash flow in 2015 or a 5% yield at the current stock price. Management pays a 2.2% dividend with a portion of the cash flow and just recently authorized a $1 billion share buyback.
With shares trading at only 16 times 2015 earnings guidance, NLSN’s stock may soon be as well-known as its television ratings.
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