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CA, Inc. (CA): Everyone Should Own This Unsexy Tech Stock

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When it comes to tech stocks, the temptation is to focus on the hot operators. But as we've seen lately - such as with LendingClub Corp ( LC ) and Square Inc ( SQ ) - these can be time bombs for your portfolio.

Best Dividend Stocks: CA, Inc. (CA)

( ) has been a public company for 35 years and provides software
solutions that enable businesses to maintain enterprise and
mainframe platforms used to power a wide array of computing
needs.

Actually, a better approach may be to focus on the unsexy companies that have strong market positions and mission-critical products … and a prime example is CA, Inc. ( CA ). It's true that growth may not be brisk, but the profits are strong.

So let's take a deeper look at the financials: In fiscal Q4, revenues came to $1.01 billion and the earnings were 60 cents a share. The Street, on the other hand, was looking for revenues of $988.3 million and earnings of 57 cents.

Going forward, it does look like there will be little growth on the top line, but this is not much of a concern for holders of CA stock. Again, the focus is really on the profitability, which is certainly juicy. CA projects fiscal 2017 adjusted earnings of $2.51 to $2.56 per share, which is above the analysts' consensus of $2.49 per share.

Yet looking at the next few years, CA could see a pump-up in growth.

Keep in mind that the company is bolstering its portfolio of tools to help with the development of cloud and web applications. A key to this has been savvy acquisitions, such as with Rally Software Development and Xceedium . Interestingly enough, there may be even more M&A opportunities because of the lower valuations in the tech space and the pullback in venture funding.

CA Stock and the Long Haul

Let's face it, the megatrend is that essentially most businesses will need to invest in software. If not, there could be an existential threat. Just look at what Uber has done to the traditional taxi business. Or what about Amazon.com, Inc. 's ( AMZN ) impact? Already there are visible signs of stress from brick-and-mortar retailers like Macy's, Inc. ( M ) and Staples, Inc. ( SPLS ).

So yes, CA believes it is poised to capitalize on the opportunity for the "application economy," which means that "every company is a software company."

But CA also has other technologies that help with managing core infrastructure, such as security, DevOps, database administration, API management and compliance. It also helps that the company has valuable intellectual property assets, including a portfolio of over 1,200 patents issued and over 950 patents pending, as well as a substantial customer base, with more than half of the Global Fortune 500.

Bottom Line on CA Stock

It's true that about 55% of the revenues of CA come from the mainframe business, which is likely to have little growth. But this segment is a cash cow (the operating margin is 61%!) So CA has used this to fund its dealmaking, R&D, share buybacks and dividend payments. Consider that the current yield is an attractive 3.4%.

Besides, the valuation on CA stock is reasonable, with the forward price-to-earnings ratio at only about 12X. By comparison, Oracle Corporation ( ORCL ) sports a 14X multiple and SAP SE (ADR) ( SAP ) trades at 17X.

In other words, for investors looking for a tech play that provides a strong foundation - in terms of intellectual property, customer base and strong cash flows - that also could see a nice ramp in growth over the next few years, CA stock looks like an interesting choice right now.

Tom Taulli runs the InvestorPlace blog IPO Playbook . He is also the author of High-Profit IPO Strategies , All About Commodities and All About Short Selling . Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.

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The post CA, Inc. (CA): Everyone Should Own This Unsexy Tech Stock appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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