How to Profit From a Better World
Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I like to make money as much as anyone else. I have never been accused of being overly sentimental and appreciate the function of a competitive and minimally regulated market to weed out weak businesses and maximize efficiency. However, I also appreciate one of the ultimate goals of a market economy, and that is to improve overall conditions for society. As a result, I am innately drawn to invest in companies that are competitive and profitable, but who are also committed to providing products and services that make life better for humanity. What can be better than making money while making life better for everyone involved?
Whole Foods Market (NASDAQ: WFM) CEO, John Mackey, put a name to making money while making life better. He calls this type of business "conscious capitalism" and contrasts his approach to business with legendary classical economist Milton Friedman's view that a business's driving force should be to make profits. Instead, Mackey stresses that a company's profits should be a result of a company making "an important difference in people's lives" by focusing on adding value for a diverse range of stakeholders including customers, employees, suppliers, communities and the physical environment. He stresses, "just as people cannot live without eating, so a business cannot live without profits. But most people don't live to eat, and neither must business live just to make profits."
Healthy growth and value for stakeholders
So far the consciously capitalist approach has been very profitable for Whole Foods by creating value for all of its stakeholders. The approach starts with Mackey, who took in a modest salary of $70,000 a year last year while leading Whole Foods to a rise in revenue of 13% and operating profit growth of 21% last quarter. Although derisively known by some as Whole Paycheck, Whole Foods has managed to build brand loyalty that fuels growth through a focus on making the consumer's shopping experience enjoyable and providing goods that are healthy and environmentally sustainable.
With a plan to triple the number of its stores to over 1000 in coming years the present profitability of Whole Foods promises to increase its ability to increase value for consumers, suppliers and investors alike. Reuters recently reported "same-store sales, a key gauge of performance for retailers, rose 6.9% for Whole Foods' fiscal second quarter that ended April 14. So far this quarter, those sales are up 9.4 percent." Although sporting an industry high P/E of 40.89 these same store sales numbers portend that Whole Foods attractiveness is still increasing and that it is deserving of its high share price.
Powering transport efficiently
Power generation is a sector of commerce that is often criticized for its focus on profit maximization at the detriment of the consumer and the environment. However, Cummins (NYSE: CMI), an international company that provides a range of power generation products, but specializes in manufacturing transport engines, is profitable as a result of its focus on delivering value to a wider range of stakeholders than just its investors and management. Cummins is recognized for its focus on making the world better through its focus on employees, sustainability, community, and efficiency.
The conscious capitalist culture of the company has made it an innovator and puts it on the forefront of improving the efficiency and decreasing the emissions of its engines. In addition to improving the environment through its innovations Cummins has also improved the bottom line for its customers and helped even competitor, Navistar, to meet more stringent EPA requirements on its diesel engines. With diesel prices reaching new highs, efficiency is highly sought by long haul trucking. The Supertruck, recently co-designed and tested by Peterbilt and Cummins, resulted in fuel consumption of "9.9 miles-per-gallon in comparison to the standard five to six," saving an estimated "$25,000 annually in diesel fuel for a long-haul truck driving 120,000 miles per year." Cummins is also ideally situated among long haul engine manufacturers through its joint venture with Westport to take advantage of the growing natural gas transport infrastructure that presently provides both a significant cost and emissions savings over diesel fuel.
These advantages make Cummins, who was down $500 million in revenue last year due to a global slowdown in heavy equipment purchases, worthy of its hefty dividend (2.0%) and P/E ratio (14.96 versus 11.76 for rival Caterpillar and 10.37 for Deere) .
Mackey states "conscious businesses believe that creating value for all their stakeholders is intrinsic to the success of their business, and they consider both communities and the environment to be important stakeholders." Despite not chasing quarterly results or making decisions to maximize the short term bottom line, holding on to these "consciously capitalist" businesses over the long term has been more than profitable to investors. Whole Foods returned 403.2%, and Cummins 77.6% to investors over the last 5 years, compared to returns of 33.5% for the S&P 500. These two companies are examples that good deeds are rewarded.
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Joshua Caldon owns shares of Whole Foods Market and Cummins. The Motley Fool recommends Cummins and Whole Foods Market. The Motley Fool owns shares of Cummins and Whole Foods Market. 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!