With Berkshire Hathaway's (NYSE:BRK.A) annual report in hand and the recent deal for Lubrizol (NYSE:LZ) still in the news, there is once again a fair bit of interest in speculating on what sorts of companies Warren Buffett would (or does) like. Though specific predictions of Mr. Buffett's moves are more often wrong, there are a handful of non-bank financial services stocks that investors may want to consider with an eye towards their franchise value and difficult-to-replace market niches. (For more, see Emulate Buffett For Fun And Profit - Mostly Profit.)
Making Payroll Services Pay
Automatic Data Processing (NYSE:ADP) and Paychex (Nasdaq:PAYX) do more than just handle payroll (for large and smaller companies, respectively), but that is their signature business lines. There is a lot here that an investor seeking to emulate Warren Buffett should find attractive. (For more, see Buffett Picks To Coattail.).
This is a recurrent fee-collecting business; people get paid on a regular schedule and these companies can collect a small fee every time they do. It is also a bet on the recovery and prosperity of the country; more jobs means more payroll and more demand for payroll services (and Buffett is a noted optimist on the long-term prospects of the U.S. economy). Last and certainly not least, each company produces a "float" of money, money paid to the companies for payroll but not yet disbursed to employees, that can be profitably invested.
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