August 24, 2014 in City

Xerox stock holds promise over long term

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Associated Press photo

Xerox is moving away from printing and copying and is expecting to boost its services revenue to two-thirds of total revenue by 2017.
(Full-size photo)

In our increasingly digitized world, Xerox (NYSE: XRX) has struggled to become more than just a copier company. Its turnaround is in progress and is promising, as the company has diversified into other, more profitable, businesses such as digital document storage and information technology.

For example, Xerox offers services for health care networks, pharmaceutical companies and hospitals. It has won contracts to process Medicaid documents for New York, California and other states, and has been an Obamacare service provider, too. Xerox also manages databases, networks, data backup, digital infrastructure, cloud storage and centralized print services for other organizations.

Xerox has been generating more than $2 billion in annual free cash flow, and its revenue growth and profit margins have improved considerably since 2010, although they are yet to fully stabilize. Xerox’s secret weapon that could win over Wall Street and pump up the company’s profits is its service segment. Specifically, Xerox is moving away from printing and copying and is expecting to boost its services revenue to two-thirds of total revenue by 2017.

Xerox is not completely out of the woods yet, but seems to be on a recovery path. Its shares seem attractively priced relative to industry peers. For patient believers, Xerox stock recently offered a 2 percent dividend yield.

Ask the Fool

Q: How should I invest money that I’m saving for a down payment on a home, so that it grows the fastest? – S.F., Madison, Indiana

A: It depends on your time frame. If your home purchase is many years away, you might invest most or all of your money in stocks – perhaps in a simple broad-market index fund (such as an S&P 500 or “total market” one) that will deliver roughly the market’s average return. Alternatively, you might invest in carefully chosen individual stocks.

If you plan to buy that home within a few years, though, the stock market should be off-limits. That’s because while the market tends to rise over the long run, it’s unpredictable over the short term. Park money you’ll need within five years (or even 10, if you want to be conservative) in stocks, and you’ll risk ending up living in a van down by the river. Short-term money should be kept in a safer place, such as CDs or money market funds, to protect your principal. Learn more at fool.com/savings and bankrate.com.

Q: What are these “diluted” shares I’ve seen in earnings reports? – J.C., Walnut Creek, California

A: A company’s bottom-line profit, or net income,” is divided by its total share count to arrive at its earnings per share (EPS). The EPS is often reported in two ways – “basic” and “diluted.” Basic EPS uses the number of shares that currently exist, while diluted EPS is more conservative, including shares that could exist, for example, if people with stock options exercised them. Other securities that could be converted into common stock are also accounted for. It’s best to focus on diluted, not basic, shares.

My dumbest investment

My dumbest investment moves have led me to prefer making my buy and sell orders while the markets are closed. That way, I have time to cancel the orders if I have second thoughts. I learned this after experiencing several instances of “WTF did I just buy?” – R.L., Norwood, Ohio

The Fool responds: It’s smart to put significant thought into investment decisions instead of acting on impulse. Your system is a good one, but you might want to make sure you’re placing “limit” orders with it. A limit order lets you specify a maximum price at which you’re willing to buy or a minimum price for a sale, giving you more control over the trade.

If you place a “market” order instead, it will execute at the best available price when the market opens for business. That’s often fine, but sometimes a stock’s price will change dramatically overnight, due to some news or rumor. Then you’ll end up having bought a stock at a surprisingly high price, or having sold for much less than you expected. So when the market is closed, limit orders are smart.


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