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There’s one growth stock in particular that I’m looking to buy in October. To say it’s flying under the radar is something of an understatement – only two Wall Street analysts currently cover the company.
It’s on Warren Buffett’s radar, though. In fact, Berkshire Hathaway owns just over 11% of the entire company.
The business has predictable growth ahead, is extremely difficult to disrupt, and (I think) trades at a decent price. The stock is Verisign (NASDAQ:VRSN).
The stock
Verisign shares have fallen by around 27% since the start of the year. As a result, the company now trades at a price-to-earnings (P/E) ratio of 25.
Verisign’s business provides domain registry services for websites. Put simply, anyone with a website ending in ‘.com’ or ‘.net’ pays a fee to Verisign to register their domain name.
Importantly the business is protected by exclusive rights agreements. In other words, anyone wanting to register a .com or .net domain has no choice but to go through Verisign.
Verisign therefore effectively has a protected monopoly while the agreements remain in place. But the .net agreement expires in 2023 and the .com agreement expires in 2024.
The good news, though, is that the contracts renew automatically provided the company meets its contractual obligations. So there’s little danger of a competitor taking away Verisign’s business.
The company charges $8.39 for a .com domain and $9.02 for a .net. The terms of its contract currently allow for a 7% annual increase in .com fees and a 10% increase in .net ones.
Risks
I think that Verisign shares could be a terrific investment for me this month. But any investment comes with risks and there are some that it’s worth noting here.
Strictly, there’s a non-zero probability that Verisign’s contracts won’t be renewed. That would be devastating for the business, but I think this is highly unlikely.
The more likely risk, in my view, comes from the number of .com and .net websites declining. That sounds strange at first sight, but here’s the threat that I can see.
As I see it, the danger is that more and more websites might be replaced by apps. As online products and services move towards app-based offerings, the number of websites might decline.
Right now, though, that danger doesn’t seem to be materialising. In fact, the company reports that the number of domains continues to grow.
A growth stock to buy
As a final thing to note is that, Verisign is also buying back shares. The number of shares outstanding has decreased from 167m in 20212 to 109m today.
Overall, I think that this is a really attractive growth stock for me to buy in October. I’ll be looking at joining Warren Buffett as a shareholder.
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