A Company I Actually Respect
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Recently I've taken to looking at my investments a bit more closely than I used to. There was a time I'd let the stock screener do the lion's share of the work, and then I'd make an almost arbitrary decision on what to invest in. Fortunately, I could always follow Warren Buffett's advice to be able to look at myself in the mirror and say, "I'm going to buy this company because..." with something fairly solid. But I've been wrong numerous times in the past.
It's going to take me a lot of successes to mentally make up for all my failures. Should I have sold BP (NYSE: BP) a few months after its oil spill, when the price was up 40% from where I bought it? It's still raking in revenue and holding steady with its profit margins, and a few months ago was allowed to begin paying a dividend once again. Honestly, I'm glad I'm holding on, despite the potential for quick profit that I gave up. And don't get me started on New Century Financial.
A couple of other companies I have considered in the past include Paychex (NASDAQ: PAYX) and Chipotle Mexican Grill (NYSE: CMG) for several reasons. I like Paychex because its business model combines holding payroll money for companies, and it can invest this money to earn profit above and beyond the fees it charges. The fact that its year over year revenue has grown 7% in 2012 and net income has grown by 6% don't exactly hurt, either. Its recent acquisitions of SurePayroll and ePlan are also positive signs that this is a company worth holding onto. When I can get it at a price I consider reasonable, I most likely will. As for Chipotle, my love of spicy food and my love of companies that earn roughly 18% profit margins mix deliciously to make this a stock I would grab if I could. I just don't like the valuation right now -- the market's too in love with this growth story.
But the stocks I actually own are the ones I really need to be concerned about. I was reading the annual reports of a few of my holdings recently, and I have to admit that one company I've felt a lot of trepidation about in the past really impressed me: the Female Health Company (NASDAQ: FHCO). This is a company I'm actually happy to own, and will continue to own for the discernible future -- or until they sell it to some huge conglomerate that completely corrupts the company's vision. But for now, it's a great company, although it isn't perfect.
Here are some things I don't particularly like about Female Health:
1. Its name. Come on, people, "Female Health Company" doesn't exactly roll off the tongue. While marketing isn't everything, having a clunky name doesn't exactly help. My attempts to bring this up to the Board have been less than successful. My ownership stake is rather minimal, and it will probably take me decades of reinvesting my dividends before I'm a somebody at the annual meeting. It will probably be awhile before I actually attend one of the meetings.
2. Its emphasis on government interaction. Simply put, one of the largest reasons why a country is poor is because of how its government handles business relationships. While I truly applaud the fact that Female Health is willing to boldly go where few others do, they are always fighting uphill. Trying to get grants and other kinds of financial allocation for something as strange as female condoms has got to be a difficult sell. I personally think they should work harder to engage the private sector for funding, considering the fact that they aren't generally competing against men's condoms in their target markets due to cultural factors.
Fortunately, these qualms are small. Here's what I like about Female Health:
1. They have a very powerful moat in that they have the patents on the only two FDA-approved female condoms in the world. Considering the mutual risks of AIDS and unwanted pregnancy in the developing world, this is nothing to sneeze at.
2. Their corporate vision is actually in line with making the world a better place. Everything I read in the annual report is congruent with this, and it startled me a little. These people actually care.
3. They pay a dividend. I made the decision to buy my first round of shares a few days before the announcement of Female Health's first dividend. Right now they pay about 4% annually. Being a dividend guy, I find this really awesome. It's kind of like ordering a piece of cheesecake and getting a side of ice cream for free.
4. Their executive compensation actually makes sense. While the stock price, return on equity and revenue all went down in 2011, acting CEO and President O.B. Parrish was not lavishly rewarded as some companies would. Parrish only took home $446,370. No bonuses, no kickbacks, no extra junk, not even any excuses. I'm not super proud of the company's recent performance, but a lower share price means I can buy more shares. And I intend to hang onto them for awhile, so no sweat.
Keep in mind that I'm only expressing my opinions, and you'd be a fool with a lowercase F to just take my word and buy FHCO. But if you do decide to research this company in more depth, I'd love to read your opinions in the comment section below.
Motley Fool blogger Chris Hodge proudly owns shares of BP and FHCO, and intends to pick up more at his earliest convenience.The Motley Fool owns shares of Chipotle Mexican Grill. Motley Fool newsletter services recommend Chipotle Mexican Grill, Female Health, and Paychex. 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.
