Portfolio spotlight: Sykes Enterprises

Regular subscribers will get once a month updates on my recommended portfolio, what stocks to sell and which I recommend to buy. Due to my patient, low trading style, some months will not feature any trades. Instead I will provided an update on current investments, how they are positioned and the factors that led me to their inclusion and continuing to hold them.

Sykes Enterprises is a business process outsourcing firm. The company’s primary business is to provide outsourced customer support services and technical support services to businesses around the globe. This is a highly fragmented industry. A lot of companies do their own customer service but a fifth of all work is estimated to be done by outsourcers like Sykes. The firm runs call centres employing about 44,000 agents but it also employs over 5,000 agents who work from home. Almost 85% of its revenues come from the Americas, Australia and Pacific Rim regions.

Sykes passed my “high quality” screen for non-financial companies on September 10, 2012. It traded at $13.48 per share. Its shares remained around the same level during the final crisis in 2007-09, but then the share price fell by almost half before it got picked up by my model. At the time, the company was averaging over 50% gross income over total assets while it traded around book value, making it excessively cheap compared to its potential intrinsic value. It got a score of 9 (out of 10) on my modified fundamental-score. Sykes has remained profitable since then and its fundamentals haven’t shown any deterioration (indicated by a F-score of 3 or less at any year). The stock has turned out very well so far, returning over 140%, but it still has some room to grow; I estimate the intrinsic value of the company to be about $40 per share, while it currently trades at around $34.

Disclosure: I own shares in SYKE