"we'd like to highlight Franklin Resources (BEN), Accenture (ACN) and H&R Block (HRB). Franklin Resources has earned net profits of 20-27 cents on every dollar of revenue for the last decade and has been incredibly profitable since going public in 1981. They operate the Franklin-Templeton family of mutual funds and offer a widely diversified array of investment choices. Over the years they have established an extremely favorable relationship with the major wirehouse investment firms like Merrill Lynch and Morgan Stanley. In the 1980s, they focused on bond funds, especially state and national muni-funds. Through acquisition they became a huge player in international investing via the Templeton family of funds (purchased in 1992) and significantly added to their US equity funds by purchasing the Mutual Series funds (purchased in 1996). We believe the fears surrounding China and emerging stock markets coupled with unspectacular results in US equity funds cause BEN to trade for a below market First-Call forward P/E of 14.1. An $11.7 billion cash hoard appears to be amassed to add to the wide array of fund choices when opportunity knocks.
Accenture is the largest IT consulting firm in the world. A simple way we like to think about ACN is that they hire very bright and tech savvy college graduates, train them well, and then send them out to execute the creation of systems and processes which use cutting edge technology to improve the way businesses operate. The customers get the improvements they need without adding permanently to employee payrolls. Accenture bills for the work at a rate which has caused them to return over 50% on equity every year they've been a public company. Since businesses always need to improve and better technology comes along all the time, ACN looks attractive to us for long duration investors even at a slightly above-market forward P/E of 18.3.
H&R Block is the largest and most well-known tax preparation firm in the US. They prepared more than 20 million tax returns last year alone. This financial service business has maintained very high returns on equity over 25%. This comes despite the fact the last ten years were a time of the wrestling with or divesting from poor performing divisions in stock brokerage, mortgage lending and accounting. Also, the company had to fight off two companies formed by a former HRB employee, which came public and nipped at Block's heels. With blue collar employment likely to pick up as commercial and residential construction make a comeback the next ten years, HRB could maintain high and sustainable profitability."
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