Fred Hickey revealed his stock picks at the Barron’s Roundtable today. Hickey is one of the better tech stock analysts in the world and it appears he has uncovered another takeover target. It should be noted that Hickey called the takeovers of NOVL and SYB several months before they were gobbled up by rivals.
Readers of Hickey’s Hi-Tech Strategist will know that he’s been bullish on BMC Software for the last few months. Today, he named BMC as one of his top stock picks in the Roundtable.
“BMC (BMC) could becomea takeover target. It used to be a mainframe-software developer, but now provides back-end systems-monitoring and performance-management software for servers, networks and databases. It has also become established in cloud computing. The stock was higher in mid-2011 on this notion. BMC offered a poor outlook in the latest quarter and blamed part of it on Europe. Also, government spending on tech was weak in the U.S., as Oracle (ORCL) It could go out in the $40s, or higher. Cisco has a close relationship with BMC and has also been mentioned as a potential buyer.noted when it issued its shocking earnings warning in December. Oracle has grown through acquisitions and has been rumored as a buyer for BMC. I don’t want to wait for BMC to go lower. It is $32 a share now.”
Shares of BMC were battered in 2011 as the chart below shows.
Hickey even spoke about the premium that BMC would attract in takeover. Hickey expects that BMC is trading at a 25% discount to it’s potential takeover price.
“It could go out in the $40s, or higher. Cisco has a close relationship with BMC and has also been mentioned as a potential buyer.”
Hickey also explains why shares of BMC are cheap and tempting for value investors.
“Analysts are looking for $3.24 a share, so the stock is selling at 10 times estimated earnings. The forecast for the fiscal year ending in March 2013 is $3.50 a share. Utility-like, the company throws off tremendous amounts of cash. It would have to be a pretty significant recession before they would have any slips. They have been buying back shares over the years, and have $6 a share in net cash. Gross margins are high, ranging from 75% to 80% in the past couple of years. They had 241 million shares outstanding in 2002 and now have 170 million, down 30%. They buy back shares every year. They have had one insider purchase recently, which is interesting, as well.”
The insider purchase that Hickey mentions was only 2820 shares making it of minimal importance.
In this environment investors are looking for yield and dividend stocks. However, like most software companies refrains from issuing dividends.
Hickey’s other Roundtable picks were largely gold related – IAU, GDX and NEM. Hickey has been a gold bull for several years as he has correctly anticipated money printing from the Fed. From Hickey’s newsletter, he has suggested his gold exposure is 80% of his total portfolio.
Interestingly, Hickey expects the tech bear market to end soon – perhaps as early as 2012. He has positioned his portfolio witha large position in MSFT and a small position in MRVL.