Now that President Barack Obama has been reelected, many fear
his vision of big-government planning, spending and taxing. But
what is so bad about big government anyway?
The problem is, with a growing government comes growing
expenses. And these days the United States is sitting on the edge
of a much-talked-about "fiscal cliff" that could make a huge dent
on its financial status. Simply put, the country can't afford to
keep spending like it has.
But not all is lost: This major disconnect couldmean a
tremendous opportunity for savvy investors to make at least a 40%
You don't have to go too far
If you look closely at state and local government budgets, then
you'll see how their problems only get worse. Though state tax
revenue is picking up, mandated spending obligations and reduced
federal stimulus are placing a heavy burden on budgets.
Imagine the size of the hole in the pockets of these local
governments during the past few years as they incurred less revenue
from lower property values, and endured cutbacks in federal and
state aid. In addition, some states have seen a mass exodus of
people, which results in lessincome tax collection.
Unlike the federal government, states are required by law to
balance their budgets. Many states have already addressed nearly
$431 billion in gaps from 2009-2011. Fiscal 2012 appears to be one
of the toughest on record, as 44 states and the District of
Columbia anticipate budget deficits totaling more than $112
billion. To cut deficits, the solution is seemingly simple: Raise
revenue (mainly through tax collection) and reduce
And many as cities, counties, schools and other local government
offices struggle through this fiscal crisis, many others have been
increasingly drawing toward technology as a method to conserve and
control spending. One of the fastest-growing sectors in this arena
is software firms that provide financial management solutions to
the public sector.
Tyler Technologies (
is one of the leaders in this segment. Its software provides tools
foraccounting and financial management of public records and
judicial cases, and for automating appraisals and assessments. The
company has providedappraisal services and tax software solutions
to virtually every public entity in the country. Its expert teams
stay in touch with evolving legislation and assessment practices to
provide superior service and data to many states across the
During the past five years, this stock has averaged annual
growth of 25% and I don't see it slowing down during the next four
years. It even managed to stay afloat during thebear market of
2008-2009 and soared thereafter. Take a look at the stock's
performance in the chart below...
Part of the reason the stock held up so nicely during the
GreatRecession is because its software services are in high demand,
especially during bad economies, when state and local offices need
all the revenue they can collect. To date, Tyler Technologies has a
total client base of more than 10,000 local government offices,
which are distributed throughout all 50 states, Canada, the
Caribbean and the United Kingdom. The company recently signed
promising contracts, including one with Nevada's Truckee Meadows
Water Authority to provide business management software in
Microsoft (Nasdaq: MSFT)
through a product called Microsoft Dynamics.
In the past year, revenue grew 21.6% to $93.8 million in
comparison with the previous year. Third-quarterearnings exceeded
expectations by 18.7%, totaling 33 cents per share. As a result,
analysts have increased their price target by almost 19% from
$43.50 to $51.60. I see the stock reaching the $60-range due to the
fact that it has consistently delivered 20% or higher annualized
gains for more than a decade.
Risks to Consider:
During the past 90 days, Tyler's standard deviation has been
1.7, while that of the S&P 500Index has been only 0.7., showing
it has more volatility than the overallmarket . Additionally, Tyler
is in the technology sector, which can see sharper price swings
based on economic news.
Action to Take -->
Buy Tyler Technologies up to $50 a share. I see this stock hitting
$60-$65 during the next 12 months, which would be a nice 40% gain
from current levels. With governments of all sizes around the
country struggling to find solutions to save money, Tyler
Technologies is well positioned to continue to deliver outstanding
returns for its shareholders, and is an excellent small-capoption
for investors to investigate further.
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