By J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 2/27/14 Sign up for Cabot Wealth Advisory—it’s free!
One of the high-quality stocks I have been recommending to buy lately is a company that has a strong balance sheet, pays a good dividend, acquired a competitor at a bargain price, and is growing rapidly.
IntercontinentalExchange (ICE) owns and operates the leading worldwide electronic marketplace for trading futures and over-the-counter (OTC) energy and soft commodities contracts. The company’s primary products include crude oil and natural gas contracts, and various soft commodity futures contracts such as coffee, cocoa, sugar, corn, wheat and fruit. In addition, the company provides clearing services for credit default swaps (contracts which guarantee the principal amounts of loans, mortgages, or bonds).
In November 2013, InternationalExchange completed the $11 billion acquisition of NYSE Euronext. The purchase nearly triples its revenues and will add to earnings immediately. Cost synergies and streamlining will help earnings per share to jump 75% by the end of 2015. More recently, InternationalExchange purchased the Singapore Mercantile Exchange with the objective of expanding into Asia.
IntercontinentalExchange is now the leading network of exchanges and clearing houses for financial and commodity markets with 18 exchanges and six clearing houses. Growing demand for innovative new products for OTC trading and oil futures contracts bodes well. Robust transaction and clearing activities will benefit ICE as institutions encounter new regulatory guidelines.
ICE shares are somewhat expensive at 24.7 times current EPS, but EPS are forecast to rise 17% per year during the next five years. The balance sheet is very strong with low debt and $24 per share of cash available to fund future needs. ICE’s dividend, recently initiated, provides a 1.2% yield. I expect ICE shares to advance to my Min Sell Price within one year. Buy at the current price. Click here for more information.