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A Pick-and-Shovel Stock for the Booming Digital Transformation

For investors who are uneasy about jumping into complex, fast-growth technology stocks, Accenture (NYSE: ACN) is a familiar name that could be a wise choice. In this video clip from "Beat & Raise," recorded on Sept. 24, Fool.com contributors Neil Patel, Brian Withers, and Demitri Kalogeropoulos discuss Accenture's powerful role in the booming digital ecosystem.

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Neil Patel: Yeah, it's actually the old advice people give with investing it's, don't invest in the goal, invest in the picks and shovels sort of thing. This is a play on the booming digital ecosystem. A lot of corporate America is making that switch over to the cloud, over to cybersecurity, whatever you might have dealing with the future of digital. Accenture obviously serves those functions in these companies. If you're scared away from investing in these unfamiliar complex fast-growth companies, this is a way to play that secular trend. It's just wild because the company has grown rapidly over COVID. I think there's over 600,000 employees worldwide, and 118,000 were added in the most recent fiscal year. In the most recent fiscal quarter, I think the CEO mentioned there was like 56,000 net new hires in the most recent quarter, that tells you just the demand for these kinds of consulting services all across the world. I mean, this is a company that it's tripled over the past five years, the stock, and I mean, they are generous with the capital allocation, returning capital to shareholders. I mean, it looks like there's a lot of growth left, especially, like I said, in Europe and Middle East, Africa, Asia. Yeah, it was overall a really good quarter for them.

Brian Withers: Yeah. Go ahead, Demitri.

Demitri Kalogeropoulos: I basically have the same exact response that Brian did. [laughs] I don't follow Accenture either, but I read through their report, I look at the infographic today too, and with a skeptical eye trying to look for, OK, this is going well and this is not, but I really couldn't find any weak spots, it's really impressive how, like you said, margins are rising. Their growth is across all their markets and all the industries they're serving that's pretty impressive. A big one that jumped out for me is that cash flow figure that you highlighted Neil, I'm looking at I mean, just in the fourth quarter, $2.2 billion in free cash flow, and they are clearly able to return a lot of that to shareholders. They're spending almost a billion dollars buying back shares, and you said, I think boosted the dividend by 10 percent. I mean, that's all good news.

Withers: Yeah. I'm sorry, Neil, get right back to you. They have a number of different ways is they cut the revenue and I'm looking at the services split for the full-year and they split it out in strategy, technology, and operations. The technology piece is around 30 of the 51 billion so it's about 60 percent of their total business. Neil, you talked about picks and shovels for the era of digital transformation. These guys are thick in the middle of it and people are hiring than them to help transform their businesses.

Brian Withers has no position in any of the stocks mentioned. Demitri Kalogeropoulos has no position in any of the stocks mentioned. Neil Patel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Accenture. The Motley Fool has a disclosure policy.


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