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Stop Vampires from Sucking your Portfolio Dry

Mike is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If there's one thing I have learned from watching too much Buffy the Vampire Slayer, it's that a plucky band of teenagers is the only thing standing between civilization and a dark future in which humanity becomes a weak all-you-can-eat buffet for a legion of vampires. And while you may have already put some thought into how to survive a vampire apocalypse, few if any people consider how it could affect their portfolios or take steps to hedge against this calamity. Investors should look for companies that will see their sales increase as the vampires' numbers increase.  And what's going to become the newest mass market commodity in our post-vampire economy?  Blood.

An Overview of the American Blood Business

Most blood donors are unpaid volunteers who give whole blood units to groups like the non-profit American Red Cross, which processes 44% of all donated whole blood in the U.S.  Blood plasma, on the other hand, consists only of the liquid solution that carries blood cells through the body. Unlike whole blood donations, red blood cells are returned to the body during the plasma donation process. Donors can donate more often because no red blood cells are lost and the plasma regenerates quickly in the human body. The plasma donation takes much longer (an average of 5 hours per session, as opposed to under an hour for whole blood donation), so donors are financially compensated by for-profit companies that do the collection and distribution.

Voluntary blood donors are chiefly motivated by altruistic behavior: the desire to help other human beings. When it become clear that our blood bank supplies now exist only to feed our mortal enemies, I expect whole blood donations to drop off.  Plasma donors, on the other hand, have a profit motive to keep giving, so that's where you'll want to invest.

Three Primary Public Blood Companies

Today, while the whole blood business is dominated by non-profits, the blood plasma industry in the United States is controlled by four main companies: America's Baxter International (NYSE: BAX), Spain's Grifols (NASDAQ: GRFS), Australia's CSL Ltd. (ASX: CSL.AX) (NASDAQOTH: CMXHY.PK), and private Italian company Kedrion. Together, they account for 85% of the blood plasma industry, and this oligarchy has a strong moat: blood products is a tough market to break into because trust in product quality is supreme, and hospitals have long-term contracts and close relationships with their suppliers. But when pints of blood move from being a high-value medical need to a basic consumer staple for the hordes of vampires among us, expect prices to fall and sales volumes to rise. Which of these companies is best situated to profit the most from this transition and buoy your portfolio in the red, rising sea of chaos that ensues?

<table> <tbody> <tr> <td> </td> <td><strong> Baxter</strong></td> <td><strong> Grifols</strong></td> <td><strong> CSL Ltd.</strong></td> </tr> <tr> <td> Recent Price</td> <td> $61.42</td> <td> $24.03</td> <td> $46.40</td> </tr> <tr> <td> 52-Week Range</td> <td> $47.55-$63.05</td> <td> $9.45-$25.00</td> <td> $28.10-$48.64</td> </tr> <tr> <td> Market Cap</td> <td> $33.5 billion</td> <td> $16.0 billion</td> <td> $23.8 billion</td> </tr> <tr> <td> Trailing P/E</td> <td> 14.90</td> <td> 73.71</td> <td> 24.83</td> </tr> <tr> <td> Earnings Per Share</td> <td> $4.10</td> <td> $0.33</td> <td> $1.89</td> </tr> <tr> <td> Operating Cash Flow</td> <td> $3.17 billion</td> <td> $541.27 million</td> <td> $1.16 billion</td> </tr> <tr> <td> Cash / Debt</td> <td> $2.35 B / $5.33 B</td> <td> $0.44 B / $3.84 B</td> <td> $1.16 B / $1.27 B</td> </tr> <tr> <td> Dividend Yield</td> <td> 2.9%</td> <td> N/A</td> <td> 1.2%</td> </tr> </tbody> </table>

(Financial data from Yahoo Finance as of Oct. 30.)

A Closer Look at the Competitors

Baxter International is the largest, steadiest, and strongest company here, with earnings over $4 per share and the lowest Price/Earnings ratio. Plus, it pays a steadily rising dividend, currently yielding 2.9%. It's currently the slowest grower of the bunch, but when it comes time to start shipping individual serving sized blood plasma to every convenience store in America, their size and market strength should give them an advantage in both acquiring new product and establishing new distribution networks here in the U.S.

Grifols appears to have a lot of debt on its book relative to cash, but this is the result of their 2011 acquisition of Talecris, the North Carolina company that gave them their foothold in the American market. They have done nicely despite Spain's economic woes because most of their revenue comes from outside of their home country. But they also have the smallest earnings and cash flow of the bunch. However, consider that Grifols' base of operations in Europe, near Old World vampire strongholds, may give it a brand advantage with the new target demographic of immortal blood suckers.

CSL Ltd. is the least well-known in the United States. The company primarily trades on the Australian stock market as CSL.AX, but you can also buy it in the United States through its thinly-traded, unsponsored ADR, CMXHY.  (Make sure you don't accidentally buy the Carlisle Group, which has the CSL ticker symbol in America.)  CSL's fundamentals are strong -- they have the least debt among our three companies, and they are hoping to use their proximity to Asia to expand into China's enormous market in the coming years. While vampires have never had much presence in China itself, CSL would be well positioned if their numbers rose in Southeast Asia or India.

The Contrarian View: Garlic, Wooden Stakes, and Running Shoes

If you prefer to take the contrarian position that humanity will have the resolve to fight back against the vampires, consider investing in America's largest timber and forest products company, Weyerhaeuser (NYSE: WY), which will be the leader in the wooden stake market. Another sure winner in the event of a protracted battle against the vampires will be the biggest seller of garlic and other packaged spices, McCormick & Co. (NYSE: MKC)

Some people will succumb; some will stand and fight.  But there's a third segment of the population in this scenario: those who will run for their lives.  And those runners, most of whom have never run a day in their life before, are going to need a whole lot of new shoes made by Nike (NYSE: NKE).

How Will Your Portfolio Survive?

Grifols, CSL Ltd., and Baxter International are three companies that you could add to your portfolio to prepare for the day when the vampire population grows large enough to make mass market consumer sales of blood products a viable business line. All three companies have their strengths and weaknesses; you could pick and choose or buy a small position in each. Contrarian investors who believe that humanity stands a fighting chance should look at companies that will provide the staples of vampire combat (and vampire fleeing), like Weyerhaeuser, McCormick, and Nike. 

Whether or not you will still be around to enjoy the profits depends on your own preparedness, so put some skylights on your house, lace up your running shoes, and stock up on garlic, crosses, and wooden stakes.  Then head to your broker's website to vampire-proof your portfolio.  And remember, once you get bitten and become immortal yourself, the phrase "long-term investing" will take on a whole new meaning!


Gordogato has no positions in the stocks mentioned above. The Motley Fool owns shares of Nike and Weyerhaeuser Company. Motley Fool newsletter services recommend McCormick & Company and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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