Intuit's a Top Pick and Appears to Be Paying a Tax for Industry Concerns; $511 Fair Value Estimate

Wide-moat Intuit is one of our top picks in the technology sector, as our $511 fair value estimate offers significant upside for long-term investors in this rarely discounted high-quality name. Contrary to market fears, we believe Intuit can weather a recession well; U.S. taxpayers must file taxes in good and bad times, and surviving small businesses focus more on cash flow management in recessionary periods. Intuit posted top-line growth even in 2008, and we think it is better positioned for weaker times today, since investments like Credit Karma ought to fare better in a downturn as personal finance takes priority. Our confidence in Intuit's long-term potential is unfazed, as we believe the company benefits from significant switching costs in its consumer tax and small-business accounting software. We think Intuit's longstanding market dominance in U.S. consumer tax and small-business accounting is a testament to such switching costs, and we are impressed by the company's high level of innovation and inability to rest on its laurels. We think the market now provides a compelling and rare opportunity to buy Intuit shares.