Illumina, Inc. (ILMN), Gartner Inc (IT): Top 2 Positions of a Successful Opportunity Fund

What I like about Life Technologies Corp. (NASDAQ:LIFE) is its high level of recurring revenue, accounting for 85% of total revenue, along with strong free cash flow generation. In the past twelve months its operating cash flow was $772 million, while the free cash flow stayed at around $635 million.

Life Technologies Corp. (NASDAQ:LIFE) is positioned for much more growth ahead with its global franchise system. It has around 1,200 scientists with broad expertise, owning 5,000 patents and licenses. In a long run, it would expand its business footprint with local distributions, localized products, local sales team with distribution acquisitions in China, Chile and South Korea, and local relationships.

Gartner Inc (NYSE:IT) – a global leader in IT research and consulting

The second largest position in Mike Lippert’s portfolio is Gartner Inc (NYSE:IT), representing 3.95% of his total portfolio. Gartner Inc (NYSE:IT), founded in 1979, is the world’s leader in providing technology-related insight to more than 13,300 distinct organizations in 85 countries. Most of its revenue (nearly $1.14 billion) was generated from the Research segment, while the Consulting and the Events segments contributed only $304.9 million and $173.8 million, respectively, in sales.

In the past four years, Gartner Inc (NYSE:IT) has managed to consistently increase earnings and cash flow. EPS has risen from $0.85 in 2009 to $1.73 in 2012 while the free cash flow has grown from $147 million to $235 million during the same period. Looking forward, Gartner Inc (NYSE:IT) expects to expand the Research business, optimize the Events portfolio, and increase the profitability of the Consulting business. The company hopes to grow its revenue by around 11%-16%. Most of the growth would come from the Research business, at 15%-20%. Gartner expects to experience a 50-150 basis points per year margin improvement in normalized EBITDA. Gartner is trading at $58 per share, with a market cap of around $5.4 billion. The market values Gartner quite expensively, at 24.6 times its forward earnings.

My Foolish take

In the long run, Illumina, Life Technologies and Gartner will manage to deliver decent operating performance, due to their global-leading positions, growing free cash flow and a lot of potential growth. Among the three, I like Illumina the most with its huge market share in the sequencing market and its huge recurring revenue, which makes the revenue stream more predictable. Nevertheless, with quite a high earnings valuation, I would rather wait for short-term price correction before I initiate a long position.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Gartner and Illumina. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article A Top 2 Positions of a Successful Opportunity Fund originally appeared on Fool.com is written by Anh HOANG.

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