When investors think of putting their money into the financial industry, their focus is usually on banks, insurance companies, brokerage firms and the like.
On the edges of the financial industry, though, are lesser-known companies that target market niches. These companies can present excellent investment opportunities for those in the know.
Let me tell you about two such companies. If you want a typical loan, forget about going to Credit Acceptance (CACC). But if you are looking to buy a car, especially if your credit history is a bit shaky, you may find Credit Acceptance is the company you want. This company works with automobile dealers and enables them to sell vehicles regardless of the buyer's credit history.
Founded by a used car dealer in 1972, the company can provide the dealer with a loan approval within 30 seconds. According to the company, it has approved over 7 million loans.
Another company on the fringes of the finance industry is Blackhawk Network Holdings (HAWK). It offers such prepaid payment and financial payment products as gift cards, telecom and debit cards and payment services in 21 countries, including the U.S. In the prepaid market, the company claims to have the lead market share in every company where it has operations.
In addition to being lesser known, both finance companies are notable for getting a high score from one of my guru strategies. Years ago, I took the investment strategies of well regarded Wall Street gurus and automated them, which allows me to analyze any stock in the same ways as these gurus. Credit Acceptance gets a nod from my Warren Buffett-based strategy, while Blackhawk earns accolades from the strategy I modeled after Peter Lynch's investment approach.
What earns respect from my Buffett strategy about Credit Acceptance is its strong market position. Earnings per share that have increased in nine of the past 10 years, an impressive average return on equity of 25.8%. There is also an impressive average return on assets of 9.1%. In addition, given today's stock price, the strategy predicts the investor can earn a strong 15.4% annually on his or her investment in the company.
When my Lynch-based strategy looks at a company, it focuses on the P/E/G ratio, which is price-to-earnings relative to growth, and is a measure of what the investor is paying for growth. The maximum P/E/G allowed is 1.0, and Blackhawk is below this threshold with a P/E/G of 0.87.
Another important factor considered by the strategy is debt -- generally, the less debt and better. Blackhawk has no debt, boosting it even more in the eyes of this strategy.
When you want to add financial companies to your portfolio, consider expanding your search to strong but not high-profile companies like Credit Acceptance and Blackhawk. They are well worth looking at.