Joseph P. Porter's  Instablog

The Dow and the S&P were up this week, as were all four teams. However, interesting turn of events in the Dow comparison, so let's look there, first:

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On the whole, there wasn't much of note happening in either team - most companies were up a little bit, a couple of companies dropped a little. However, compared to last week, the Pedigrees picked up 245 BPS on the Dogs, which is quite an accomplishment.

How did this happen? Thank Cisco Systems (CSCO) and Microsoft Corp. (MSFT) for having fantastic weeks. Cisco gained 1593 BPS, to 24.94% from 9.01% last week. Microsoft, on the other hand, posted a 914 BPS gain, to 32.24% from 23.10%. These two companies made all the difference, as when you average the total of their growth over the team as a whole, they account for more than the 245 BPS gain.

While the Dow Pedigrees were closing in on the Dogs, the S&P Pedigrees were busy extending their lead over their competition - by 317 BPS.

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The Pedigree cause was aided again by Cisco, with the rest of the Pedigrees turning in fine performances; the Dogs, however, suffered several significant losses: Cliffs Natural Resources Inc. (CLF); Pitney Bowes Inc. (PBI) and Reynolds American Inc. (RRD), all took significant dives which, when added to the gains by Cisco, account for the increased spread between the two teams.

Disclosure: I am long PFE.

Editors of Seeking Alpha willing, an article should soon appear which is intended to be the first in a series of articles identifying companies I believe present valuable solutions to persistent ethical problems. I firmly believe that it is important to invest in companies that offer solutions to problems, whether they be environmental, ethical, or whatever.

But what about "bad" companies?

If I were to say two words, what company would come to mind?

Edsel.

Pinto.

If you said "Ford," you would be right.

D'uh.

Two of the most recognizable names in history. Not just automotive history, but in commercial history. One of them is considered by many to be one of the biggest marketing disasters in automotive history, while the other is considered to be an example of the most dangerous products of cold-hearted, nefarious businessmen putting dollars ahead of people's lives.

Ford Motor Company (F) is one of the two major U.S. automakers (Chrysler doesn't count, in my book - as a car, that is). It is not beyond Ford, however, to screw up badly, and it has.

The Edsel is widely considered to have been the wrong product for the wrong time. Its design was "different" (some said its grill looked like an Oldsmobile eating a lemon), but it had some advanced technology, as well. Initially selling for around $3,000 in 1958 (NEW! Can you believe that?), a mint condition Edsel would now constitute something in the neighborhood of a 40- to 50- bagger, with a value over $100,000.

There is nothing morally wrong with being ugly, however. (No, seriously!)

The Pinto, on the other hand, was a nice little car but for one little problem: it had a tendency to burst into flames if it got rear-ended. Ford was, at the time, trying to compete with the influx of small, inexpensive, gasoline-efficient German and Japanese imports. The Pinto was intended to weigh less than 2,000 lbs. and cost less than $2,000. The smaller, light-weight car was an extremely popular car.

Unfortunately, it became widely believed that the car would explode if rear-ended.

The reputed problem was that, in designing the car, the gas tank was positioned behind the rear axle (standard configuration), and when the back end of the vehicle was shortened, the ends of the bolts that fixed the rear bumper to the body were too close to the gas tank, so that when hit from the rear, the bolts would pierce the tank, causing spillage and increasing the chance of a fire (the more noteworthy of the problems the Pinto had).

Ultimately, the Pinto's explosive rear end was blamed for 27 deaths. In the course of determining Ford's liability in the deaths it was uncovered that engineers had warned executives of the potential for explosions. It was reported that Ford had commissioned a cost-benefit study to determine whether the cost involved in fixing thousands of Pintos to correct the bumper problem was feasible; it was determined that the repairs would be more expensive than the lawsuits resulting from injuries caused by the design flaw. The repairs would also bring the cost of the vehicle above the magic $2,000 limit.

I am not going to argue whether Ford was right or wrong (we're talking 40 years ago), but to the extent that a company (a) manufactured a vehicle it knew was unsafe; (b) avoided repairs to the vehicle in order to minimize its costs; (c) placed the value of its business above the value of human lives; to that extent the company acted immorally.

Should one invest in a company that operates immorally? I, personally, do not. Minimally, shareholders would seem to be responsible for writing/calling/confronting the company's management to demand the cessation of immoral activities, and full compensation to those who were victimized by those activities (up to and including offering to buy back defective products at the original purchase price).

Was Ford at fault? I have studied much of the material related to the Pinto, and I believe that the Ford executives at the time were remiss in their moral and fiduciary responsibilities. That said, in 40 years Ford has made its peace with that dubious period of its history.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Seems like the market was a mixed bag of tricks last week -- on the whole, the Dow and the S&P did well, but not every stock contained therein did as well as others.

Let's look at the Dow groups:

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The Dogs managed to erase any gains the Pedigrees made last week, and, for the most part, the difference seemed to boil down to two companies: Hewlett-Packard Company (HPQ) in the Dogs, and Microsoft Corp. (MSFT) for the Pedigrees. HP seemed to get back to its winning ways, pushing ahead ~ 650 BPS - a nice one-week gain. Microsoft, on the other hand, managed to limp to a loss of 314 BPS.

How about the S&P 500:

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Here, the Dogs managed to make up some of the distance between their performance and that of the Pedigrees. On the Dogs' side, this is due mainly to two companies: R.R. Donnelley & Sons Co. (RRD) and Cliffs Natural Resources Inc. (CLF). Donnelley was up by a noteworthy 550 BPS +, while Cliffs exploded for an impressive gain of 939 BPS - a very good week for a company that has had its problems so far this year.

For the Pedigrees, the only real bright spot was Analog Devices Inc. (ADI), which jumped up by 425 BPS; the other Pedigrees performed passably well with a mixture of small gains and small losses.

All in all, one of those weeks that leaves you scratching your head.

Disclosure: I am long PFE.