Giant computer maker Dell Inc. recently caught the attention of a number of tech stock investors when it bought Perot Systems, a computer outsourcing firm.
But it wasn’t the takeover itself that was surprising; it was the tech stock’s $3.9 billion offer for Perot that caused eyeballs to pop. That’s a 60% premium over Perot’s share price at the time of the takeover.
Dell’s offer throws the spotlight on tech stocks that provide consulting services
Dell’s surprise move had an immediate impact on one of the tech stocks we recommend in The Successful Investor, CGI Group Inc. (symbol GIB.A on Toronto). The news pushed up the computer-outsourcing firm’s shares by 10%. We’ve updated our advice on CGI in the latest issue.
CGI is Canada’s largest provider of computer-outsourcing services. The tech stock’s clients are mainly corporations and government agencies. CGI helps these organizations automate certain routine functions, such as accounting and buying supplies. This lets them focus on their main businesses, and improve their efficiency.
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Unlike many tech stocks, CGI is focused on cutting its risk in what can be a turbulent sector. It focuses on customers in industries such as government services, health care and telephone utilities. These organizations tend to remain steady no matter which way the economy moves. As well, the company sells its services on five- to 10-year contracts. This helps to cut risk further.
CGI is no small player among technology stocks. The company has over 100 offices in 15 countries. While Canada accounts for 60% of its over $3.8 billion in annual revenue, it gets 35% from the U.S. That puts CGI in direct competition with Perot, and was likely one of the reasons why CGI’s shares climbed on news of the Perot takeover.
Heightened investor interest in tech stocks should continue to help CGI
Dell’s move has a number of investors asking if CGI could be a takeover candidate itself. The short answer is that insiders control 53% of CGI’s votes through multiple-voting class “B” shares. That makes a hostile takeover unlikely, but CGI could put itself on the market, given the high premium Dell paid for Perot.
Either way, Dell’s offer highlights the strong earnings potential of firms like CGI, particularly as the economy continues to recover. You can continue to follow the company’s progress, and get our updated buy/sell/hold advice on it and other tech stocks in our Successful Investor newsletters and weekly hotlines. Click here to learn how you can get one month free when you subscribe today.
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