Great Companies Making Stuff You Don't Want to Buy
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Every so often you read about so-called “sin” stocks. These corporate bad boys tend be involved in guns, alcohol, and tobacco, among other things. However, these aren't the only companies making things or providing services that are not particularly desirable or that are best avoided. That said, a good deal of money can be made from owning such companies.
AFLAC (NYSE: AFL)
AFLAC is probably best known for its duck. Most know that it is an insurance company, but what exactly it offers might be misunderstood. Essentially, the company provides fairly specialized supplemental coverage for things like cancer or hospital stays. While the insurance it offers can be beneficial, it's a complete waste of money paying for the coverage if you don't use it. And most people don't.
The best part of AFLAC's business model is that it doesn't charge employers a dime, only customers. However, by “providing” its coverage, employers get to tout another benefit of employment without any cost to them. Thus, AFLAC gets access to a huge customer base without having to work all that hard to reach it. It's genius, but not particularly a great deal for customers.
That said, as an investor, AFLAC has been a great investment option. For starters, it's increased its dividend every year for well over a decade. Second, despite taking a big hit during the recession, it's shares appear to be back on an upward climb. While a soft economy and a weak job market will clearly take a toll on a company selling optional insurance, the company really hasn't missed a stride.
Dollar General (NYSE: DG) and Dollar Tree (NASDAQ: DLTR)
I have nothing against dollar stores. In fact, they can be a lot of fun to peruse to see what kind of shlock they have. However, if I had no choice but to shop at a dollar store, my perception would be very different. That's the problem here, these companies cater to customers who simply can't afford to shop at other stores.
That business model has been a good one over the last decade or so, leading to expansion and profit growth. After a rather long run up, the shares of both of these retailers have taken a hit of late. The problem is that the lingering weak economy is making it increasingly hard for their target customers to spend freely. While this is clearly a near-term issue, longer term these low-price shops probably have more growth ahead of them.
The big question for these companies, however, will be their ability to keep customers after the current economic weakness subsides. Indeed, dollar stores were able to gain customers trading down. What happens when these customers look to trade up? Assuming that Dollar General and Dollar Tree focus on maintaining a positive store experience and at least adequate product quality, they will probably keep a large portion of their customer base to some degree. Now might be a good time to take a look at these non-traditional retailers.
Align Technology (NASDAQ: ALGN)
Align Technology is the company behind invisalign, a popular alternative to traditional braces. I have nothing against straitening teeth, beyond the obvious fact that moving your teeth around isn't terribly comfortable and takes a long time. That said, braces are, the vast majority of the time, cosmetic in nature and, thus, not a necessity. Align Technology takes this lack of necessity one step further in that its product is more expensive than traditional braces.
Why can the company charge more? Because, as the name suggests, invisalign is less visible than regular braces, which are pretty ugly to look at. Demand for this premium, elective product is so great that sales have actually increased throughout the current weak economic environment. That's the exact opposite of what would be expected for this high cost, purely cosmetic, and totally optional product. If money is a concern, invisalign is probably not a good idea, but investors looking for a company with a product that customers seem more than willing to pay up for, in good times and bad, would do well to take a look.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Aflac. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!