3 things Computershare Limited has going for it in a bull market

Rising stock markets and high volume share transactions keep the company in the black

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The recent pullback in prices of tech stocks in the US, has pundits wondering if at least a temporary peak has been hit and it may signal a market correction. The S&P 500 Index (NYSE: ^GSPC) set a new all-time high of 1,897 in early April and currently is about 20% above the previous high set back in October 2007, just before the GFC started.

The S&P ASX All Ordinaries Index (ASX:^XAO) similarly hit a 52-week high in late April.

Are we due for a correction? It is hard to say, but it would be a good way to bring out some bargains. One company that investors may like to see selling at a discount, is Computershare Limited (ASX: CPU).

It deals in the stock market share registry business and acts as a share trade transaction agency. When shares are bought and sold, it manages the recording of ownership transfers. As you can imagine, as more shares are sold in a rising stock market, a company like Computershare will have more business to handle.

For investors looking at the stock possibly for the first time, what is attractive about the stock and could it be a good portfolio addition?

Share price movement:    The stock is up 24.7% in the last twelve months and has been trading sideways, after hitting a 52-week high of $12.76, about two months ago. It has a 21 PE and a dividend yield of 2.3%.

Earnings growth:    Annual net profit was up in 2013, after dropping down in 2012. In the first half of FY2014, net profit was up 47.4% on the previous corresponding period, mostly due to a big reduction in its direct services expenses.

Outlook:    Its full year guidance is for its management earnings per share, to be 5% – 10% higher than in 2013.  It just announced a new US acquisition of a share registry business, with turnover of about US$19 million. Computershare’s US business accounts for the largest amount of revenue and earnings.

It is always possible to have a market pull-back or correction — that can be said for any year. Yet in general, the Australian and international markets are improving. As long as corporate earnings are rising, the move to the upside is the stronger trend. That is a plus for Computershare and for its shareholders.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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