Is IBM’s Watson Supercomputer Smart Enough to Up the Firm’s Profit?

NEW YORK (TheStreet) -- IBM  (IBM) introduced the smart supercomputer Watson in 2011. It has a 4-TB hard drive packed with the entire text of Wikipedia, and you can ask it any questions.

If Ginni Rometty, the chief executive of IBM, could use Watson to increase the annual profit of IBM from $16.5 billion to $22.8 billion, which is what Microsoft (MSFT) currently makes, what answers would it give?

Obviously, I don't work for IBM and I don't have access to a Watson. I am just using my old-fashioned and apparently obsolete brain to find cheap and profitable acquisition targets for IBM. 

You cannot achieve that with a single acquisition. You can't buy a software and programming company or a computer services company that is already making $6.3 billion each year. Nobody in the entire world makes that kind of money.

Google (GOOG) , Microsoft or Oracle (ORCL) could agree to sell to IBM an unprofitable subsidiary that IBM could turn things around and turn a profit in a few years. But that is highly unlikely.

In fact, there are only two companies in the entire world making $6.3 billion: Taiwan Semiconductor (TSM) and Bank of Nova Scotia, but the price tags are more than $109 billion and more than $80 billion, respectively.

The price-to-earnings ratios are 17.08 and 13.34, respectively. Both companies are more expensive than IBM right now.

I don't know if these two companies are overvalued or if IBM is extremely cheap at this point in time. But let's leave those two for another time. Right now, we are trying to increase IBM's annual profit by $6.3 billion but without using an $80 billion MasterCard.

Let's see if we can find two or more companies that generate combined annual profit of $6.3 for less than $40 billion.

  • CA Technologies (CA) makes at least a cool billion each year, with a price tag of more than $13 billion.
  • Symantec (SYMC) makes at least $900 million each year, with a price tag of more than $16 billion.

  • Checkpoint Software (CHKP) and Fiserv (FISV) make at least $700 million each year, with a price tag of more than $13 billion and more than $16 billion, respectively.
  • Verisign (VRSN) makes at least $500 million each year, with a price tag of more than $7 billion, and Amdocs (DOX) makes at least $400 million each year, with a price tag of more than $7 billion.
  • I don't have to tell you the software and programming sector is red hot, and a lot of companies both large and small are buying all sorts of software every year in order to replace human beings with computers.

    However, sometimes individual shareholders get too enthusiastic about these fast-growth companies and they bring the stock price to irrational levels.

    As you can see, if you take a closer look at the P/E of all the previously mentioned software and programming companies, you will find that more or less all of them are currently trading in the same range as IBM. This is because IBM is the champion of the world in the computer services sector and nobody in the entire world makes more money than it does. Not even Google (GOOGL) , Facebook (FB) and Twitter (TWTR) combined.

    When you find a company that is almost twice as expensive as IBM, as is Citrix Systems (CTXS) , you need to analyze the numbers a bit more and see for yourself if this is a winner or a loser.

    Annual profit for this company is dropping fast, from $356 million in 2011 to $352 million in 2012 to $339 million in 2013.

    In other words, Citrix is trying very hard to convince current customers to stay with it, offering huge discounts. That is a recipe for disaster.

    Citrix cannot sign enough new customers to replace the old customers that are leaving the company, and it has no choice but to reduce profit margins. This is good news for you if you happen to be a Citrix customer, but bad news if you are a Citrix shareholder.

    A lot of individual investors could not jump into the Microsoft, Oracle or SAP  (SAP) trains a few decades ago, and now they are trying very hard to get on board the next $100 billion train.

    It appears that a lot of people have jumped into the Citrix train in the last few months, and the company went from $54 to $56 and all the way up to more than $70.

    One easy way for IBM to increase profit by $5 billion is to sell short this company on the days where the daily volume is below average until the stock price drops to more reasonable levels.

    You can sell short this company on your own too, if you can afford to lose up to 20% of your investment.

    Another expensive company is Akamai Technologies (AKAM) . This company is on a mission to build a faster Internet, and everybody loves that idea. A lot of companies are buying services from this company, and their annual profit just keeps getting bigger and bigger each year.

    In fact, this company was started only 16 years ago and it is currently the 21st most profitable computer services company in the entire world with annual profit of $293 million and growing fast.

    USB says this company is a buy and thinks it's going to sell over $5 billion by 2020, and that the current stock price will rise all the way to $70.

    Very few companies in the world can offer this, but there is always a young punk out there currently thinking new algorithms that can make the Internet faster and make this entire company obsolete within five years.

    There is a lot of financial risk when you are investing in mathematical companies. Right now, investors are acting as if nobody is going to build faster software in the next two decades.

    This company is not worth more than $10 billion.

    Selling short technology companies is dangerous in this day and age. Google, Facebook or Amazon (AMZN) could decide to buy Citrix Systems or Akamai Technologies for $19 billion, and you would lose up to 20% of your investment in a day.

    These three companies have been buying a lot of companies lately and nobody can predict which companies they are going to buy next.

    If you don't make at least $186,000 each year, these short sales are not for you.

    Proceed with caution.

    If you monitor closely all computer services companies and all software and programming companies, you can find every now and then extremely expensive companies that you can sell short and make a few thousand dollars every year for the rest of your life.

    On rare occasions, these companies will drop in price, but only for a very short period of time, because every hedge fund manager investing in the technology sector is watching these companies closely, and if their financial analysts find discrepancies, they quickly act and start buying these companies.

    At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

    Now let's look at TheStreet Ratings' take on some of these stocks.

    TheStreet Ratings team rates INTL BUSINESS MACHINES CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

    "We rate INTL BUSINESS MACHINES CORP (IBM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, notable return on equity, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • INTL BUSINESS MACHINES CORP has improved earnings per share by 41.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INTL BUSINESS MACHINES CORP increased its bottom line by earning $15.02 versus $14.41 in the prior year. This year, the market expects an improvement in earnings ($17.90 versus $15.02).
    • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the IT Services industry average. The net income increased by 28.2% when compared to the same quarter one year prior, rising from $3,226.00 million to $4,137.00 million.
    • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the IT Services industry and the overall market, INTL BUSINESS MACHINES CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
    • Net operating cash flow has increased to $3,579.00 million or 12.75% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.67%.
    • The gross profit margin for INTL BUSINESS MACHINES CORP is rather high; currently it is at 54.45%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 16.97% trails the industry average.
    TheStreet Ratings team rates WELLPOINT INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

    "We rate WELLPOINT INC (WLP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • Compared to its closing price of one year ago, WLP's share price has jumped by 35.05%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, WLP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • WLP's revenue growth trails the industry average of 20.7%. Since the same quarter one year prior, revenues slightly increased by 4.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
    • The debt-to-equity ratio is somewhat low, currently at 0.61, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, WLP has a quick ratio of 1.57, which demonstrates the ability of the company to cover short-term liquidity needs.
    • Net operating cash flow has significantly increased by 151.88% to $1,071.00 million when compared to the same quarter last year. In addition, WELLPOINT INC has also vastly surpassed the industry average cash flow growth rate of 10.50%.
    TheStreet Ratings team rates RAYMOND JAMES FINANCIAL CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate RAYMOND JAMES FINANCIAL CORP (RJF) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • The revenue growth came in higher than the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 9.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
    • Powered by its strong earnings growth of 44.06% and other important driving factors, this stock has surged by 30.10% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, RJF should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • RAYMOND JAMES FINANCIAL CORP has improved earnings per share by 44.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, RAYMOND JAMES FINANCIAL CORP increased its bottom line by earning $2.58 versus $2.20 in the prior year. This year, the market expects an improvement in earnings ($3.22 versus $2.58).
    • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 46.3% when compared to the same quarter one year prior, rising from $83.86 million to $122.69 million.
    • Net operating cash flow has increased to $317.83 million or 34.00% when compared to the same quarter last year. In addition, RAYMOND JAMES FINANCIAL CORP has also vastly surpassed the industry average cash flow growth rate of -89.01%.
    TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

    "We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • MSFT's revenue growth has slightly outpaced the industry average of 11.6%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
    • MSFT's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MSFT has a quick ratio of 2.31, which demonstrates the ability of the company to cover short-term liquidity needs.
    • Compared to its closing price of one year ago, MSFT's share price has jumped by 45.08%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • Net operating cash flow has significantly increased by 61.17% to $9,514.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 41.66%.
    TheStreet Ratings team rates GOOGLE INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

    "We rate GOOGLE INC (GOOGL) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, disappointing return on equity and feeble growth in the company's earnings per share."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • GOOGL's revenue growth has slightly outpaced the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 21.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
    • Although GOOGL's debt-to-equity ratio of 0.05 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.14, which clearly demonstrates the ability to cover short-term cash needs.
    • The gross profit margin for GOOGLE INC is rather high; currently it is at 61.68%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 21.44% trails the industry average.
    • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 31.96%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 37.92% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
    • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market on the basis of return on equity, GOOGLE INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
    TheStreet Ratings team rates ORACLE CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

    "We rate ORACLE CORP (ORCL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, attractive valuation levels, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • Compared to its closing price of one year ago, ORCL's share price has jumped by 28.55%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, ORCL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • Despite its growing revenue, the company underperformed as compared with the industry average of 11.6%. Since the same quarter one year prior, revenues slightly increased by 3.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
    • ORACLE CORP reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ORACLE CORP increased its bottom line by earning $2.39 versus $2.26 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus $2.39).
    • The gross profit margin for ORACLE CORP is currently very high, coming in at 81.88%. Regardless of ORCL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, ORCL's net profit margin of 32.20% significantly outperformed against the industry.
    TheStreet Ratings team rates TAIWAN SEMICONDUCTOR MFG CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

    "We rate TAIWAN SEMICONDUCTOR MFG CO (TSM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, growth in earnings per share and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • TSM's revenue growth has slightly outpaced the industry average of 10.3%. Since the same quarter one year prior, revenues rose by 20.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
    • TSM's debt-to-equity ratio is very low at 0.28 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, TSM has a quick ratio of 1.64, which demonstrates the ability of the company to cover short-term liquidity needs.
    • Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 25.68% which was in line with the performance of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, TSM should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • TAIWAN SEMICONDUCTOR MFG CO has improved earnings per share by 18.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TAIWAN SEMICONDUCTOR MFG CO increased its bottom line by earning $1.18 versus $1.10 in the prior year. This year, the market expects an improvement in earnings ($1.64 versus $1.18).
    • The gross profit margin for TAIWAN SEMICONDUCTOR MFG CO is currently very high, coming in at 72.85%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 32.61% significantly outperformed against the industry average.
    TheStreet Ratings team rates CA INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate CA INC (CA) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • Net operating cash flow has significantly increased by 1409.09% to $166.00 million when compared to the same quarter last year. In addition, CA INC has also vastly surpassed the industry average cash flow growth rate of 41.66%.
    • The gross profit margin for CA INC is currently very high, coming in at 85.69%. Regardless of CA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 20.29% trails the industry average.
    • CA INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, CA INC reported lower earnings of $1.98 versus $2.07 in the prior year. This year, the market expects an improvement in earnings ($2.47 versus $1.98).
    • CA, with its decline in revenue, underperformed when compared the industry average of 11.6%. Since the same quarter one year prior, revenues slightly dropped by 2.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
    TheStreet Ratings team rates SYMANTEC CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate SYMANTEC CORP (SYMC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, notable return on equity and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • SYMANTEC CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, SYMANTEC CORP increased its bottom line by earning $1.27 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($1.89 versus $1.27).
    • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 50.3% when compared to the same quarter one year prior, rising from $157.00 million to $236.00 million.
    • SYMC's revenue growth trails the industry average of 11.6%. Since the same quarter one year prior, revenues slightly increased by 1.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
    • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Software industry and the overall market, SYMANTEC CORP's return on equity exceeds that of both the industry average and the S&P 500.
    TheStreet Ratings team rates CHECK POINT SOFTWARE TECHN as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate CHECK POINT SOFTWARE TECHN (CHKP) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, increase in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 26.25% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, CHKP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • CHECK POINT SOFTWARE TECHN has improved earnings per share by 9.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CHECK POINT SOFTWARE TECHN increased its bottom line by earning $3.28 versus $2.97 in the prior year. This year, the market expects an improvement in earnings ($3.66 versus $3.28).
    • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Software industry average. The net income increased by 5.7% when compared to the same quarter one year prior, going from $151.01 million to $159.66 million.
    • Despite its growing revenue, the company underperformed as compared with the industry average of 11.6%. Since the same quarter one year prior, revenues slightly increased by 6.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
    • CHKP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, CHKP has a quick ratio of 1.81, which demonstrates the ability of the company to cover short-term liquidity needs.
    TheStreet Ratings team rates FISERV INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

    "We rate FISERV INC (FISV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, reasonable valuation levels, good cash flow from operations and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • The revenue growth came in higher than the industry average of 12.2%. Since the same quarter one year prior, revenues slightly increased by 4.6%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
    • FISERV INC has improved earnings per share by 15.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FISERV INC increased its bottom line by earning $2.45 versus $2.15 in the prior year. This year, the market expects an improvement in earnings ($3.36 versus $2.45).
    • Net operating cash flow has significantly increased by 63.90% to $277.00 million when compared to the same quarter last year. In addition, FISERV INC has also vastly surpassed the industry average cash flow growth rate of -2.67%.
    • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 33.54% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
    TheStreet Ratings team rates VERISIGN INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

    "We rate VERISIGN INC (VRSN) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, compelling growth in net income, revenue growth, expanding profit margins and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 15.3% when compared to the same quarter one year prior, going from $86.89 million to $100.18 million.
    • VRSN's revenue growth trails the industry average of 19.9%. Since the same quarter one year prior, revenues slightly increased by 4.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
    • The gross profit margin for VERISIGN INC is currently very high, coming in at 88.07%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 40.00% significantly outperformed against the industry average.
    • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
    • VERISIGN INC has improved earnings per share by 29.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, VERISIGN INC increased its bottom line by earning $3.54 versus $1.91 in the prior year. For the next year, the market is expecting a contraction of 23.2% in earnings ($2.72 versus $3.54).
    TheStreet Ratings team rates AMDOCS LTD as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate AMDOCS LTD (DOX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, solid stock price performance and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • The revenue growth came in higher than the industry average of 12.2%. Since the same quarter one year prior, revenues slightly increased by 7.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
    • DOX's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, DOX has a quick ratio of 1.92, which demonstrates the ability of the company to cover short-term liquidity needs.
    • Compared to its closing price of one year ago, DOX's share price has jumped by 29.80%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, DOX should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
    • Net operating cash flow has increased to $198.81 million or 14.71% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -2.67%.
    TheStreet Ratings team rates FACEBOOK INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

    "We rate FACEBOOK INC (FB) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the stock itself is trading at a premium valuation."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • FB's very impressive revenue growth greatly exceeded the industry average of 19.9%. Since the same quarter one year prior, revenues leaped by 60.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
    • FB's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 12.48, which clearly demonstrates the ability to cover short-term cash needs.
    • Net operating cash flow has slightly increased to $1,341.00 million or 1.43% when compared to the same quarter last year. Despite an increase in cash flow, FACEBOOK INC's cash flow growth rate is still lower than the industry average growth rate of 17.66%.
    • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Internet Software & Services industry and the overall market, FACEBOOK INC's return on equity is below that of both the industry average and the S&P 500.
    TheStreet Ratings team rates CITRIX SYSTEMS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

    "We rate CITRIX SYSTEMS INC (CTXS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • Despite its growing revenue, the company underperformed as compared with the industry average of 11.6%. Since the same quarter one year prior, revenues slightly increased by 7.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
    • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Software industry and the overall market on the basis of return on equity, CITRIX SYSTEMS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
    • The gross profit margin for CITRIX SYSTEMS INC is currently very high, coming in at 88.88%. Regardless of CTXS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, CTXS's net profit margin of 6.78% is significantly lower than the industry average.
    • CTXS's debt-to-equity ratio of 0.61 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.90 is weak.
    • CITRIX SYSTEMS INC's earnings per share declined by 8.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, CITRIX SYSTEMS INC reported lower earnings of $1.81 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($3.23 versus $1.81).
    TheStreet Ratings team rates AKAMAI TECHNOLOGIES INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

    "We rate AKAMAI TECHNOLOGIES INC (AKAM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • AKAM's revenue growth has slightly outpaced the industry average of 19.9%. Since the same quarter one year prior, revenues rose by 25.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
    • Although AKAM's debt-to-equity ratio of 0.21 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 3.82, which clearly demonstrates the ability to cover short-term cash needs.
    • AKAMAI TECHNOLOGIES INC has improved earnings per share by 17.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AKAMAI TECHNOLOGIES INC increased its bottom line by earning $1.61 versus $1.13 in the prior year. This year, the market expects an improvement in earnings ($2.35 versus $1.61).
    • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Internet Software & Services industry average. The net income increased by 17.8% when compared to the same quarter one year prior, going from $61.90 million to $72.89 million.
    • Net operating cash flow has significantly increased by 54.34% to $200.22 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 17.66%.
    TheStreet Ratings team rates AMAZON.COM INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

    "We rate AMAZON.COM INC (AMZN) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, weak operating cash flow and feeble growth in the company's earnings per share."

    Highlights from the analysis by TheStreet Ratings Team goes as follows:

    • The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues rose by 23.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
    • Although AMZN's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average.
    • 36.46% is the gross profit margin for AMAZON.COM INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.65% trails the industry average.
    • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet & Catalog Retail industry. The net income has significantly decreased by 1700.0% when compared to the same quarter one year ago, falling from -$7.00 million to -$126.00 million.
    • Net operating cash flow has declined marginally to $862.00 million or 2.04% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, AMAZON.COM INC has marginally lower results.

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