I hesitated to write about this trend. It's disturbing. Many
of its facets are also politically charged. But as an investor, I
have to avoid politics. There's no money to be made by laying
blame or opining about what should be. My only job is to find
strong trends that support an investable idea.
So noted Amy Calistri in the introduction to the most recent
Stock of the Month
I'll get to Amy's "investable idea" in a moment.
First, some background ...
Four out of five American adults struggle with joblessness,
near-poverty or reliance on welfare at some point in their lives.
That's what The Associated Press reported in late July, based on
what it said was exclusive survey data.
This report came on the heels of a July 17 Gallup poll showing
that a fifth of two-parent households in the United States said
there were times during the preceding 12 months when they
struggled to afford food. Among single-parent households, the
portion of those reporting food-affordability problems soared to
nearly a third.
Against that backdrop, it should come as little surprise that
nearly 1 in 6 Americans receives food stamps.
What may be surprising, however, is that food-stamp use as of
June was up 2.3% from a year earlier to nearly 47.8 million
That's right. Even as the unemployment rate has dropped and as
a number of other economic indicators have steadily improved
since the recession, the number of food-stamp recipients
continues to climb.
Source: Stock of the Month, based on U.S. government data.
One reason for the apparent discrepancy: the swelling of the
ranks of the "working poor."
As Amy pointed out in the
Stock of the Month
, the number of jobs in the low-paying food-and-drink service
sector grew 21.3% in the past 10 years, while other jobs
increased by just 3.2%.
In 2010, 26.9% of fast-food workers participated in the
food-stamp program (which, since 2008, is officially known as the
Supplemental Nutrition Assistance Program, or SNAP). Since then,
Amy wrote, "the minimum wage hasn't changed, (but) the ranks of
fast-food employees have grown."
Moreover, according to Amy, 284,000 college graduates -- some
with advanced degrees -- worked in minimum-wage jobs last year.
That's up 70% from a decade ago.
Wherever there's a societal or business trend in the making --
however troubling -- chances are someone stands to benefit. And
toward that end Amy looked to the administration of the
food-stamp program itself for her investable idea.
You see, just as the numbers of SNAP users -- and their
profiles -- have changed over the years, so has the "stamp."
The nation's largest food assistance program has its roots in
the Great Depression in the 1930s, when the government issued
blue stamps to subsidize the cost of food that was in surplus.
After an 18-year hiatus, the idea was revived in the 1960s,
expanding into a permanent program that sold discount food
coupons to low-income people. In 1977 the government began
distributing food stamps to the poor for free.
These days, food-stamp purchases are made electronically -- on
plastic Electronic Benefit Transfer (EBT) cards that resemble
A writer for the Las Vegas Guardian Express recently called
the EBT cards "the American Express card of the 21st
Amy recently called them the basis for her September "
Stock of the Month
Here's more from Amy...
There are only three companies involved in the administration of
the EBT cards used for SNAP and other government assistance
programs. You focused on the least well-known of the three. Who's
your pick, and why?
Stock of The Month
Both JPMorgan Chase (
) and Xerox (
) administer EBT programs. But I chose
Fidelity National Information Services (
because this business is right in its wheelhouse and it's in a
position to gain market share.
In its Sept. 2 issue, Forbes Magazine published a list of what
it considers to be the world's most innovative companies.
Alongside tech giants such as Apple (Nasdaq: AAPL) and Google
(Nasdaq: GOOG) is Fidelity, the world's largest provider of
banking and payments technologies.
Fidelity currently has the smallest number of SNAP state
contracts of the three providers. Most of these are legacy
contracts that eFunds secured before it was acquired by Fidelity.
But now as part of a larger corporate entity, Fidelity has the
clout to be a bigger player, primarily at JPMorgan's expense. For
instance, on Sept. 16, Fidelity will start administering
Florida's SNAP program, which previously was a JPMorgan
In making the case for Fidelity in
Stock of the Month
, you refer to a "wave of SNAP recipients to come." Who are
Older Americans, those age 60 or older. The average monthly
Social Security check for a retired worker is $1,269.38. The
average monthly Social Security check for the spouse of a retired
worker is $633.27. The median retirement savings of all
households nearing retirement is just $12,000. Even for
households with a designated retirement account, median savings
are just $100,000 for the soon-to-retire. All in all, it's not an
Roughly 3.8 million people age 60 or older currently receive
SNAP benefits, but many more are eligible.
Overall, nearly three-quarters of people who qualify for SNAP
apply for benefits. Yet only one-third of the qualifying elderly
apply for SNAP. The reasons for this are varied. Many people who
are retired and collect Social Security assume they don't
qualify. The older generation also tends to assign more of a
stigma to public assistance programs. But as more of their
friends and family members participate in the program, baby
boomers are starting to view SNAP as one more tool they can use
to make ends meet.
The elderly are also the fastest-growing segment of the
population. The number of those 60 years old or older will grow
from 59.5 million in 2012 to 74.8 million in 2020.
To what extent will the upcoming congressional debate over
food-stamp allocations likely affect the participation or
allocation rate -- and, by extension, the fortunes of the
companies involved in the administration of the program?
Companies that administer SNAP are affected more by the number of
participants than the actual benefit amount. There are likely to
be some eligibility cutbacks when the Farm Bill comes up for
debate, primarily related to work requirements for working-age
adults without children. But the potential participation impact
from this change will be more than offset in the near future by
the growing ranks of minimum wage workers and the elderly.
Actually the biggest legislative change that could reduce SNAP
participation is an increase to the minimum wage. While that
issue has been raised, it has yet to gain traction in
What else influenced your decision to go with Fidelity as your "
Stock of the Month
" for September?
I've been encouraged by recent economic data out of Europe. If
Europe begins to stabilize, I think that will be a big plus for
the global economy. That's another reason why I think Fidelity is
an appealing opportunity. Roughly 20% of Fidelity's revenues come
from its International Solutions Group, which provides banking
and financial software and consulting services. Financial
institutions in Germany, Brazil, the United Kingdom and India are
Fidelity's primary international customers.
Another trend I've been tracking is the growth of mobile
banking. A recent study by Juniper Research projected 550 million
people worldwide will use their smartphones for banking by 2016,
up from 185 million in 2011. In March, Fidelity completed its
acquisition of mFoundry, a company that specialized in mobile
payment systems for financial institutions and retailers.
Fidelity has made a number of smart acquisitions of
leading-edge payment processing companies. These technologies can
now be better leveraged by Fidelity's scale and reach.
Unlike many other advisory services, I only profile one stock
a month -- the single best opportunity I can find. To qualify, I
have to be convinced that a number of trends and factors are
working together to produce returns that outperform the market. I
believe that Fidelity has that potential.
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