alarm:clock

- Friday, October 3, 2008

The Boring, But Safe, Investment With Tibco

The next time we want a deal done, we're calling Wells Fargo (WFC:NYSE) Chairman Richard Kovacevich. Whether its selling our house, renegotiating our contract with The Alarm:Clock, or even buying a new car, we're bringing in Mr. Kovacevich to make it happen. His deal to buy Wachovia (WB:NYSE) is not just good, its sublime. Waiting until he knew the House was going to pass the bailout plan and offering a far better deal (but certainly not excessive) than Citigroup (C:NYSE). Regardless if the original deal between Citigroup and Wachovia was exclusive, Citigroup CEO Vikram Pandit looks a little foolish letting this one get away. And now that Wells Fargo CEO John Stumpf will be able to dump all of Wachovia's lousy mortgages on the U.S. taxpayers, Mr. Steel is going to be kicking himself every time his limo passes a Wachovia branch. Fortunately for Mr. Steel, Wachovia forgot about the real estate proverb "location location location" when placing their branches around the country. Unless he is slumming, Mr. Steel probably won't see the new Wells Fargo branches and be reminded of how he got trumped by Mr. Kovacevich.

With unemployment numbers starting to crater and a certain amount of doubt surrounding the market whether or not the bailout package is really a stimulus package, we decided to pick a safe play today, Tibco Software (TIBX:NASDAQ).

Tibco specializes in business process management software. Before you fall asleep or reach for a large glass of whiskey, business process management software is employed by most complex businesses. Unfortunately for Tibco, 31% of their revenues are from companies in the financial services industry. Fortunately for Tibco, none of those companies are named Washington Mutual, AIG (AIG:NYSE), or Wachovia. Aside from financial services, Tibco seems to have its finger in several other industries but is hardly the dominant player in any of them.

So why do we like Tibco? Despite economic challenges, the company increased its net income in the third-quarter by $7 million over the same time period in the previous year. We would be a little happier, and so would shareholders, if the company had done a little better job controlling its expenses. Tibco has been aggressively increasing its sales force that should eventually lead to higher revenues. We all know that sales people seldom produce stellar numbers in their first three months so this should work itself out. Future increases in revenue shouldn't come at such a premium.

Also in Tibco's favor is an experienced management team that has spent a lot of time at the company. CEO Vivek Ranadivé founded the company in 1985 and has shown the ability to grow with the company. Almost all of his executive team has been with the company at least 5 years and most have been around since the 90's. That speaks well of the company that people want to stay and make Tibco successful.

While our 12 month target price of $7.75 is not significantly higher than the current share price which is resting slightly above the 52-week low, we do believe it's a relatively safe investment. Considering the turbulence of today's market, everyone could use a some safety in their portfolio, even if it is boring.