Database Companies Good for Growth
Advances in technology coupled with an increased demand for data to perform targeted marketing and a trend toward outsourcing has Alexia Quadrani, vice president and direct marketing analyst at Bear Stearns, predicting annual growth rates of 25 percent to 35 percent for database managers.
"As more and more people are using data, the companies that can update and sort it and refresh this information, the demand for these services will grow exponentially," Quadrani said.
One of Bear Stearns' top picks is Acxiom Corp., which dramatically increased its analytic capability and customer base by acquiring rival May & Speh in May and now holds a dominant position in the database arena. The increased use of its InfoBase product, which is now sold for a fixed fee, also should boost margins. Acxiom, which closed June 29 at $25, recently has been upgraded to a "Buy" rating with a 12-month price target of $29.
Valassis Communications, a new Portfolio addition, is another top pick. The company is one of two dominant producers of free-standing inserts along with News America and has been able to raise it prices by 26 percent over the past three years. Valassis, which closed June 29 at $38, also is rated a "Buy" with a price target of $45.
"Everything in our direct marketing universe is either 'Buy' or 'Attractive' because we are very bullish on the industry," Quadrani said. The investment bank rates stocks as "Buy," "Attractive" or "Neutral," in descending order.
Bear Stearns rates Advo, Big Flower Holdings, Harte-Hanks as "Attractive." New Portfolio additions and outsource service providers Cultural Access Worldwide and Snyder Communications both get a "Buy" rating. Big Flower and Snyder are two examples of DM companies growing through acquisition. While not every corporate merger can be viewed as a sign of earnings and share price increases, mergers of DM companies currently are a good thing.
"While the market is so fragmented and these larger players can pick and choose what makes sense, more often than not [acquisitions] are positive for the company," Quadrani said.
Cataloger Genesis Direct, which conducted an initial public offering in May at $15 a share, and outsourcing provider Compass International Services Corp. also are new additions to Portfolio. Artistic Greetings dropped out after its acquisition by MDC Communications.
Portfolio Value: If $1,000 had been invested in each of these companies at the beginning of the year -- or for newly public companies when the stock first closed -- the value would be $108,836, an increase of 8.8 percent.