David Peltier
Shares of tax preparation-software producer Intuit(INTU Quote - Cramer on INTU - Stock Picks) have lagged the market in 2007, dropping some 4% year to date, closing Wednesday at $28.33. So why would investors want to buy a tax-prep company in August, four months after April 15?
Because the calendar says so. Intuit was upgraded from sell to neutral at the brokerage Merrill Lynch on Monday, with one of the reasons being the stock's "clear seasonal pattern." According to the research note, the stock has gained an average of 29% from August through the end of December. Ironically, this period covers the two "off-season" quarters in which the company consistently posts an operating loss. On the other hand, Intuit shares have declined an average of 4% from January to August over the same period. In fact, going back to the company's 1993 initial public offering, the stock has moved lower in the August-through-December period just twice. So with that in mind, I'm here to answer readers' questions: Should you buy it? Is Intuit attractive to purchase at current levels ahead of its usual seasonal rally, or should readers take a pass this time around? With approximately 80% of the consumer market with its TurboTax software and 90% of the professional market with QuickBooks as measured by unit sales, the company enjoys solid pricing power both on the retail shelves and for Internet-based tax applications. Intuit also generates gross margins above 80%, and in February the company paid $1.2 billion for online bill-payment service provider Digital Insight, in an attempt to attract more small-business customers.
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