This column will be part of a multi-part series that looks at some specific stocks that fund managers are moving into. Given the elevated level of the market, it's becoming harder and harder to find attractive ideas.
Last week, 13F filings came out -- the quarterly reports from the Securities and Exchange Commission that show the positions of investment funds -- and there have been some exciting developments. These columns will examine the more intriguing ones.
It may come as a surprise given this bull market, but some quality businesses have been left behind. One such name is Diebold Incorporate (DBD). Diebold offers equipment and related services to the financial and government markets. The company is known for its automatic teller machines (ATM's) and other cash security products such as check cashing machines, and cash recyclers.
Diebold has a market cap of $2 billion. Shares trade for $30.58 and are flat so far this year. The stock yields a very comfortable 3.8%. Earlier, the company issued a profit outlook that suggested 2014 revenues would be up in the low single digits, but profits would miss expectations. Diebold expects 2014 earnings per share of $1.65 to $1.85 while analysts were expecting $1.86. Free cash flow, according to the company, is expected to come in between $80 million and $100 million.
With a market cap of $1.9 billion and an enterprise value of $2.1 billion, Diebold has a healthy balance sheet. The 2014 outlook compares with losses that the company will incur in 2013. After the financial crisis, banks curtailed purchases of ATM's. As profits sunk, Diebold replaced its CEO in 2012. ATM sales are expected to continue rebounding in 2014. Diebold also has been aggressively cutting costs and is also focusing more intently on its cyber security and video surveillance businesses. Security and surveillance is currently a $9 billion market in the U.S. and growing.
Some shrewd investors have taken notice and loading up on the shares. Small-cap investing legend Chuck Royce of Royce & Associates increased his position to 1.5 million shares from 1.1 million during the third quarter. Another small-cap fund, SouthernSun Asset Management, initiated a three million share stake. SouthernSun sees shares approaching $50 in the next three years. Add in the juicy yield, and Diebold shares look intriguing in this market.
Stay tuned for part two of this series that takes a closer look at specific investments made by some of the best names in the business.