Today’s financial headlines can equal tomorrow’s pocketed profits and today one of the businesses I want you to consider is Xerox. Anyone who has ever worked in a corporate office, anyone who has ever been in a sales environment–heck, anyone who has ever made a copy knows Xerox. The name brand recognition is off the charts, so much so that the company spends millions each year fighting to keep its name from becoming the de facto verb for making copies. (“Go Xerox off 100 copies of these,” said the boss to the lackey, and off he scuttled while corporate lawyers lurked like vultures.)
But Xerox has another problem and that’s the hundreds of other smaller, more streamlined companies who are making “all in ones” or even better for the environment, the companies that are going paperless to .pdf files. Xerox is a struggling business hoping to redefine itself in today’s economy. Yes, businesses all over the country still use Xerox-branded copy machines, but other companies are making inroads into that core business. The business model is changing and Xerox the company must change with it.
In an effort to make that transition and redefine the corporate brand, Xerox has aquired Affiliated Computer Systems, ACS, and that purchase let them move into a new arena. For swing traders, it also opened up an opportunity to ride ACS stock up from 45 to 53 over a three day period. Now ACS trades around 53, and Xerox trades at 7.68, and those of you who have read me before know I love the stocks under $10. So based on what we read in the news and what we feel is the future of a dinosaur in the business, is Xerox a good long term (1Q 20009) swing trade?
I call XRX a dinosaur, but really, IBM is a dinosaur that has survived separate reincarnations of its core business to remain a blue chip stock at the heart of many hedge funds. So comparing XRX to a dinosaur isn’t an insult, it’s just a statement on the company. The writing has been on the wall for copy machines (their former core business model) for the past ten years. Even as network companies began connecting copy machines so they could speak to each other across millions of miles of fiber optic cable, the death knell for the office copier from Xerox was sounded. There were just too many other companies competing to get into their space and define it as a commodity, which forces the company to compete on price. Xerox was too big and bulky to do that, and relied on a value proposition that most small business owners couldn’t afford to appreciate.
Now the stock is a value proposition, and under $10 should be a good trade for a long term hold. There are several factors that can affect what may happen with the stock. Bad economic news can depress the price even further or prevent a growth of over 2 -3 points per share. However, if the economic news continues to trend rosy, and oil prices continue to decline, then the stock price for Xerox should slide up around $9-$10 per share. Make your trading plan accordingly.
As oil prices continue their decline this week, the economy should start building. There seems to be a direct correlation between declining gas prices and economic recovery: I think it’s because people spend the $5 - $10 extra dollars per week on fast food, consumables and other items that would have gone to oil companies. I also know that OPEC won’t allow the price to fall low enough to keep the economy growing, and so we are left with a bunch of lurches and false starts, instead of a long term growth trend. Keep an eye on oil prices and use them to plan out some short term trades.
If you are as uncomfortable as I am in leaving the US economy in the hands of other countries, then do something about it. Start biking to work. You’ll lose weight and save a few thousand dollars each year that you can use to invest in companies like Xerox or Dell or MSFT, which you can then turn into a portfolio worth much much more. Save the world and get rich. Who wouldn’t say yes to that?
