Beginning alphabetically, Capgemini (XPAR:CAP, Financial) is Europe's largest IT consulting firm—an attractive sector that is growing faster than the economy as companies continue to outsource this function in a relentless pursuit of greater efficiency. Over the past decade, the French-based firm has radically transformed its business model to focus more on its digital products, diversify its client base and make its delivery model more cost effective. Yet investors have not fairly appreciated these changes. Approximately 60% of the company's sales are now digital—one of the highest levels in the industry. This should enable Capgemini to enjoy a wave of corporate technology investment as Covid-19 prompts companies to accelerate their digital transformation roadmaps. In addition, the company has a strong business model, comparable to its U.S.- and Indian-based peers, and we believe it generates an excellent return on invested capital, converts a substantial amount of earnings into cash, trades at a significant discount to its peers and offers an attractive absolute valuation. Given the company's strong future growth outlook, promising merger-and-acquisition opportunities, and ongoing margin improvement, we believe Capgemini offers exciting potential to add shareholder value.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund first-quarter 2021 shareholder commentary.
