Business Management Blog

H&R Block (HRB) is one of the most widely recognized consumer brands, as the company is nearly ubiquitous across the country at tax time. H&R Block misstepped badly during the housing bubble, making a major foray into mortgage loans. This mistake is now behind the company, so future value creation will depend mostly on H&R Block’s ability to gain share versus other tax services providers, such as CPAs. The trend toward electronic tax return preparation — think Intuit’s TurboTax — remains the major long-term threat to H&R Block’s prospects.

GT Solar (SOLR) provides manufacturing equipment and services for the production of photovoltaic, wafers, cells and modules, and poly silicon worldwide. While we normally avoid solar companies because the entire sector has been hyped for quite some time, GT Solar is interesting both from a valuation standpoint as well as the fact that respected value investment firm Oaktree Capital Management owns more than 5% of the shares.

GigaMedia (GIGM) is engaged in the growing business of providing gaming software and services to the online gaming industry in China, Taiwan, Hong Kong, and Macau. The company’s solid balance sheet and valuation of sightly less than 1x enterprise value to trailing revenue make GigaMedia worthy of consideration.

Synopsys (SNPS) provides electronic design automation (EDA) software and related services to semiconductor companies worldwide. The EDA segment remains one of the most attractive places in the semiconductor value chain, and Synopsys is a leader in the space. The company derives a large portion of revenue from recurring software subscription fees, improving the steadiness and predictability of the business. High-quality tech companies such as Synopsys rarely trade cheaply enough to appear on a ‘magic formula’ screen, which is why we take note of it here.

Lorillard (LO) lacks a key attribute of a great business — an ability to reinvest FCF at high rates of return. As a domestic-only tobacco maker, Lorillard operates in a slowly but steadily declining market. This puts the company in cash harvest mode despite the modest growth exhibited by Newport in recent years. Lorillard may continue outperforming the rest of the tobacco industry for quite some time to come, but that’s not saying much considering the challenges facing U.S.-centric tobacco companies.

Hewlett-Packard (HPQ) needs no introduction. The recent trading price implies a current earnings yield of roughly 11%, quite respectable for this industry leader. Respected value-oriented fund managers Steve Mandel of Lone Pine and Dan Loeb of Third Point initiated positions in Hewlett-Packard during the second quarter.