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Staples, Inc. (SPLS), The Western Union Company (WU): Don’t Ignore the Boring Stocks

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It’s easy to get a little too excited about the next big thing. Investors throw their money into stocks like Tesla Motors Inc (NASDAQ:TSLA), 3D printing companies, or new cloud-based tech IPOs, expecting far more than these companies can realistically deliver. At the same time these investors ignore the stocks of mature companies operating in boring industries, often missing fantastic opportunities in the process. Three stocks that fall into this category, all of which I own, are Staples, Inc. (NASDAQ:SPLS), The Western Union Company (NYSE:WU), and Cisco Systems, Inc. (NASDAQ:CSCO).

Staples, Inc. (NASDAQ:SPLS)

Who cares about office supplies?

I first wrote about Staples, Inc. (NASDAQ:SPLS) in September of last year in an article entitled Staples: Overreaction and Opportunity after initially buying the stock three months earlier. At the time of the article Staples stock had fallen after disappointing earnings to a little under $11 per share, quite a bit lower than the $12.99 I originally paid for the stock. Was I worried? Did I panic and sell? Absolutely not. In fact, I bought more. About a month after the article was published I more than doubled my stake at a price of $11.69 per share.

Since then the stock has rebounded and then some, currently trading for around $16.50 per share.

SPLS data by YCharts

That’s about a 35% increase from my average weighted purchase price, a pretty solid return. Why was I so confident in Staples, Inc. (NASDAQ:SPLS) when almost everyone else was predicting doom? Because I did the best I could to block out the noise.

When people think of the office supply industry their mind goes to the big-box stores dotting the landscape. But a big part of Staples’ business is the commercial segment, which sells directly to businesses, and this segment has been growing even as the retail business has been weak. Staples, Inc. (NASDAQ:SPLS) is also one of the largest online retailers in the country, and that segment is growing as well.

In a mature industry like office supplies it’s important to buy the best company, and Staples is by far the best. Unlike its competitors Staples has been consistently profitable throughout the last decade, generating around $1 billion in free cash flow annually. At $11 per share the market capitalization was just $7.5 billion, and with very little net debt the company was very clearly a steal. Even if earnings were flat going forward the stock would still be a bargain.

The standard bear argument is that Amazon.com, Inc. (NASDAQ:AMZN) will kill Staples, Inc. (NASDAQ:SPLS), but this seems exaggerated to me. Staples is actually the number two online retailer by revenue behind Amazon.com, Inc. (NASDAQ:AMZN), and I would expect a company that focuses on doing one thing well will be a better choice for businesses than a company like Amazon.com, Inc. (NASDAQ:AMZN) that tries to do so many things at once.

At $16.50 per share Staples, Inc. (NASDAQ:SPLS) isn’t nearly as cheap as it once was, but it’s still reasonably priced. Staples pays a nice 2.9% dividend and has been actively buying back shares with its ample cash flow, so I’ll be holding onto my shares even after the run-up in price. Pessimism is the friend of the long-term investor, and those who bought Staples when everyone else was selling have done well.

As boring as boring gets

The Western Union Company (NYSE:WU) is an old company in a misunderstood industry. People seem to think that the Internet will kill Western Union, but much of the company’s customer base doesn’t have Internet access, or even a bank account. There is a significant barrier to entry in the form of regulations – not just anyone can start sending money to Myanmar. And since most of the costs are fixed, scale is extremely important in the industry.

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