Money In The Middle

very good trend–namely the growth of Internet transactions and bill paying. Still, Fiserv has been tainted with a negative image now that financial institutions and banks are undergoing heightened scrutiny. The stock’s valuation is attractive in our eyes. It trades at 16 times its 2008 earnings-per-share estimate while we see a 15% or more annual growth rate ahead–no matter what happens to interest rates or credit markets.

There are worries that consumer spending is in the doldrums. Are any of your portfolio holdings affected by that?
Phillips-Van Heusen Corp. (PVH) is. The company participates in a number of segments of the fashion market. We like the significant licensing deals the company has with a number of brands, including Calvin Klein. Phillips-Van Heusen has done good work to strengthen and reposition its name by both manufacturing products, and in other cases farming out fragrances and jeans to another firm. The company is helping to bring Calvin Klein to profitability on par with Ralph Lauren. It has done similar things with the Izod and Geoffrey Beene labels in addition to its old standbys Arrow and Van Heusen, in each case raising returns by building and strengthening brands. The stock trades at 13 times 2008 earnings, while we see growth of 15% to 16% annually over the next five years.

You’ve described another type of stock in your portfolio as a whole that is greater than the sum of its parts. What’s an example?
We think The Brink’s Co. (BCO)–the old security and armored car outfit–fits that description. A few years ago it was a conglomerate with an air freight unit that was losing money. The company sold off its freight unit to complete a transformation and exit from businesses, such as coal mining, that are outside of its present core operation. Now there are shareholders clamoring for the company to split its home security business from its traditional money transport and coin sorting and packaging operation.
One reason is that home sales are down and investors worry that the slump could affect Brink’s. Look more closely at the business, however, and you see that home security doesn’t need new contracts in order to turn a good profit. Each new contract requires an up-front installation of equipment, but Brinks makes most of its money once a system is in place and its cash flow for any one account improves. We value the company in its entirety at $75 to $80 a share and see 15% growth for Brink’s, which trades at about 20 times 2008 projected earnings.

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