Some Truly Scary Companies
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ah, I love Halloween. I can throw on my homeless gear and shamble the streets moaning at random passersby without looking like a freak, if only for one day of the year. Okay, I don't actually do that, but I do a lot of other freaky things. One of them is sitting at home doing stock research.
Now, in some recent posts I've said some things that have made me pretty unpopular. And I'd like to say with all seriousness that if I ever say something untrue, I will correct it and beg the forgiveness of anyone I've spoken falsely against. As a person who's been accused of things I didn't do, nothing burns my fur worse than lies. I love good businesses, and I don't want to hurt them or the employees who work hard to make them successful.
But if you're running your company into the ground, I fully intend to call you on it.
Let's start with what the Friends of the Earth has called the world's worst company: Vale (NYSE: VALE). Vale is the world's largest exporter of iron ore, and is also a major player in copper, aluminum and other metals. It has done very well to diversify itself, and its current gross profit margins are over 50%. However, the price for this is simply too high, given Vale's history of human rights and environmental abuses.
The Belo Monte dam is a prime example of this. Could you imagine if you and everyone in your community were forced from your home without even getting a vote on the matter, and your compensation for this was tiny compared to what you were losing? For around 40,000 people (and who knows how many animals) along the Amazon River, this is precisely what Vale has set in motion. This is one company with a P/E around 8 and a 3.6% dividend I'll happily leave on the shelf. I couldn't spend that money with a clear conscience.
Fortunately, the list gets better from here. Bank of America (NYSE: BAC) doesn't break communities or the environment. However, its customer service is rated at around 25 out of 200, according to consumer review website CustomerServiceScoreBoard.com. In this case, low is very bad.
Consumers complain of the company raising their mortgages payments without notification, sending back payments through their own automated bill-paying service and not providing company employees with information they need to help their customers. If this causes someone to lose their home or suffer undue credit damage, it's pretty shady business. With a dividend yield of .4% and a P/E in the 25 range at nearly penny stock status ($9.32 per share as I write this), I'll pass. But of course, banking is known to be a business where consumers often get frustrated.
Let's look at something more light-hearted, like some entertainment companies.
No one gets hurt when Electronic Arts (NASDAQ: EA) or Activision takes a franchise and causes it harm, the way these companies did to The Sims, Mass Effect, or Call of Duty. It makes some gamers rage in the forums, but that's a relatively small thing. However, my fellow investors might also get a little steamed at EA's 200+ earnings multiple, wildly fluctuating share price, or the fact that it tends to hurt good brands. Consider what happens when a company buys a moat -- that's a good thing. But when that same company begins shoveling gravel into the moat, effectively ruining it, this is a seriously bad sign. The gaming community is speaking, and it's saying that they don't like EA's abandonment of its original mission of creating video games that are art.
But TV's safe, right? Sadly, no.
If I'm ever tempted to forget, Dish Network (NASDAQ: DISH) is one of the reasons why I don't have a TV. After all, when I can go online and watch a million hours of guinea pigs frolicking like pudgy little angels for free (don't judge me), why should I shell out cash to a company that can barely keep its channels up and running?
With over 14 million customers, the level of service most subscribers get is not rated very highly. Worse still, even the employees at Dish aren't too happy about the long hours and the holidays they have to work. According to Glassdoor, the CEO only has a 32% approval rating. With grueling hours and the inevitable drag on morale, Dish's 13.14 earnings multiple is a phantom of a good deal. I'll take Netflix over Dish in its current form any day, or buy a piece of YouTube through a share or two of Google first.
If this article sounds super-negative, just remember that it wasn't so long ago that Apple looked like nuclear waste. I wouldn't have written about these companies if I thought they had no hope, because they all have something going for them. It's never too late for a turn-around, and I hope these companies get it together before things get any worse.
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pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America and Electronic Arts. Motley Fool newsletter services recommend Electronic Arts. 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.