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Aria Melton
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Aria Melton is a green entrepreneur. She reads widely on economics and environmental issues and supports animal rescue charities. Aria successfully started, operated, and later sold two green businesses. She has a keen interest in investing in companies that make a difference in the world and... More
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Aria Melton - Ethical Investing
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  • Ethical Investing, Lesson 9: Businesses that Give Back

    What would you say if I told you there was a company whose products don't clutter up your home or pollute the planet, and are purchased year after year? How about if the company also had a habit of donating generously to several good causes? What if they had also received recognition for maintaining a diverse, family-friendly workplace? And what if their stock was fairly close to its 52-week low?

     

    As ethical investors, we seek to improve the world by investing in the right companies. If two firms are otherwise evenly matched, should we invest in the one that invests in the community, or the one that hoards its profits?

     

    Allstate Corporation (NYSE: ALL) is certainly investing in the community. As an insurance company, Allstate's products don't fill shelves or create toxic waste, and are routinely re-purchased by existing and new customers. Allstate offers insurance policies for just about everyone - house and condo owners, manufactured home owners, drivers, renters, and businesses are covered. Life insurance, retirement plans, and banking services are also available. It's no surprise Allstate is the second-largest insurance company in the USA.

     

    Allstate has received a number of awards for workplace diversity and accommodating employees with children. They have been named a Top Company for Executive Women, a Top 10 Company for African Americans, one of the 50 Best Companies for Latinas to Work, one of the 100 Best Companies for Working Mothers, and one of the 100 Best Adoption-Friendly Workplaces, among many others. 

     

    The cherry on the Allstate cake is the company's commitment to improving the world. The Allstate Foundation has tirelessly pushed safer cars and stricter licensing laws and advocated safer teen driving through working with the peer-based program Keep The Drive. Another of the Allstate Foundation's pet causes is domestic violence. The Foundation makes direct grants to survivors, enabling them to pay for childcare, public transportation to school or vocational training programs, educational expenses, and donates to state organizations that work to combat abuse and assist survivors. Allstate even created a Financial Empowerment Curriculum, designed to teach abuse survivors how to make and manage their own money. Many women who stay with an abuser do so out of financial necessity, so the Curriculum is a major step in the right direction.

     

    Allstate encourages its employees and agency owners to volunteer their time and leadership skills in their communities. The company is also quite active in its hometown of Chicago, funding museum exhibits, playgrounds, and a reading program. Every act of corporate kindness has an impact, and a large company with deep pockets has the potential to improve the world on a much larger scale than individual donors.

     

    It is true that Allstate has been criticized for allegedly being tough on policyholders who file insurance claims. However, this practice is common among insurance providers and is not unique to the company.

     

    Ethical investors must research philanthropic companies carefully. It has been suggested that some corporations donate to charity to distract the public from less-than-ethical business practices (Wal-Mart and BP come to mind here), and I believe this happens more often than the public would ever realize. Allstate does not strike me as one of these companies, particularly since they encourage volunteerism rather than just throwing money at problems.

     

    At $26.93, Allstate stock is not too far from its 52-week low of $24.32. The stock hit its high point of $34.31 in May, and will probably bounce back. Laws in many states require auto insurance, and most homeowners don't dare let their insurance coverage lapse - there could be a fire, flood, earthquake, or freak accident at any time. Allstate will probably continue to profit from new and renewed insurance policies. After all, most people realize insurance is much less expensive than having to replace uninsured items out of their own pockets. 

     

    You might not think Allstate is a good value if you're looking at the trailing P/E, but forward P/E is only 7.3. Allstate has a healthy ratio of cash to debt, and the stock pays a 3.1% dividend. Another indicator that Allstate stock is undervalued is that the price/book value is a low 74%. I believe the shares are a bargain under $27.

     
    Tags: ALL, insurance
    Dec 10 8:23 PM | Link | Comment!
  • Ethical Investing, Lesson 8: Safety First

    Everyone loves a safe, reliable product made by a respected company. In an age when product recalls flood the media and major corporations often prove themselves unworthy of consumers' trust, dependable companies that are still making safe products continue to be held in high esteem.  

    Consumer products need not necessarily be "idiot proof" to be ethical, but they must be reasonably safe when used as directed. The ethical investor should know enough about a company's products to make a reasonable judgment about the company's commitment to consumer safety.

    The word "safety" brings just one word to the minds of many consumers, myself included: Volvo. The company's dedication to safety goes back to its founding in 1927, when the first Volvos were created with Sweden's icy, dark winters in mind. Indeed, the company was championing safety long before government regulations required seat belts and safety glass. 

    Volvo rolled out padded dashboards way back in 1956. Modern 3-point seat belts were invented by a Volvo engineer and became standard for Volvo cars in 1959, nine years before American cars were legally required to have basic lap belts. Volvo created the first rear-facing child seat in 1964, childproof locks on rear doors in 1972, and its own booster seat in 1978. Side airbags were standard in all Volvo models by 1996, head-protecting airbags joining them two years later. Volvo engineers kept improving the cars' safety with whiplash protection, blind-spot vehicle detection, an optional safety feature that can detect an intruder in the car, adaptive cruise control, collision warning and brake support, and pedestrian detection with an automatic brake. 

    Many car manufacturers have added similar features to their vehicles. After Ford Motor Company bought Volvo, many of Volvo's safety features were added to Ford cars. Basically, Volvo sets the standards. Are you sold on their dedication to safety, or do I need to go on?

    Volvo is currently owned by Zhejiang Geely Holding Group (0175.HK). The holding company has a $14 billion market cap, and trades at a P/E of 8.7. You can also purchase Geely Automobile in the US over the counter market (OTC: GELYF.PK). Geely intends to make Volvo-branded cars for the Chinese market, which Volvo has already agreed to. The Chinese government has not yet agreed to this proposed situation, but given the exploding demand for sedans and higher-end cars in China, it is probably only a matter of time before an arrangement is made. In spite of all the fraud and ethical issues surrounding a lot of Chinese companies, Geely is a real company making real cars for a rapidly expanding market. Therefore, I was quite surprised at the astounding valuation metrics on Geely.

    Volvo-branded cars, of high enough quality to win Volvo's approval, would most likely be in high demand among China's growing middle and upper middle classes. And Geely has the means to begin production - they have just under $700 million in cash, plus ready access to inexpensive labor and materials. The stock is currently $1.90 in Hong Kong and a low $0.23 per share in the OTC version, so any investor with faith in China's emerging free markets can afford to purchase at least a few shares.

    Geely does have the usual slug of debt associated with automobile manufacturing, but with their cash and current EBITDA, it could be paid off easily. Geely has a single-digit P/E and 10% profit margins, which are very healthy for this industry. With a modest valuation and the opportunity to use Volvo's long history of safety in the world's largest car market, Geely is enthusiastically endorsed by this ethical investor. 

    Disclosure: I have been a Volvo driver since 1999.

    Nov 30 11:05 PM | Link | Comment!
  • Ethical Investing, Lesson 7: Preferred Industries

    Some industries are inherently more ethical than others, and the ethical investor must choose which industries to exclude. Your personal blacklist may differ from mine, which excludes the following:

     

    Tobacco

    Alcohol

    Weapons

    Manufacture of toxic chemicals

    Gambling

     

    Enough said. Now that I've eliminated all the fun stuff, let's move on to the good guys. I have selected three to discuss: alternative energy, green"er" transportation, and organic food.

     

    Not withstanding the second law of thermodynamics, alternative energy is here to stay. Solar, wind, and geothermal power are cleaner, safer, and potentially more economical than conventional power plants. As Earth's population continues to rise, more power will be required. Since sunlight and wind are free and the supply is essentially infinite, they are better suited to meeting future energy needs than non-renewable fossil fuels.

     

    Two things seem clear. One - alternative energy will only provide a small proportion of our needs in the next few decades. Two - like other emerging industries, there will be many failures and only a few successes before these industries mature. With that in mind, the ethical investor needs to be especially vigilant in picking winners and avoiding losers.

     

    From an ethical perspective, it's hard not to like solar power (especially localized solar power), but I advise investors to seriously consider wind power as well. The global installed capacity for wind energy grew by roughly 600 percent in the last decade, and the boom is likely to continue. Stock selection is important here as solar manufacturers tend to be loaded with debt. I'm watching Nordex (XETRA: NDX1.DE), a German company which has a growing presence in Asia, Europe, and the US. Nordex has $228 million in cash to $252 million in debt, but EBITDA is a healthy $38.6 million, and the company recently completed its biggest wind farm to date. Trailing P/E is a little rich at 22.6, and the stock is currently at its 52-week low of $3.82 (down from $9.36 in April). Unlike some of its competitors, Nordex has weathered the last four years and stayed profitable. It is a likely survivor.

     

    Greener transportation is on the rise. As gas prices continue to climb, more people are buying bicycles, taking the bus, and buying train tickets. Railroads are also the most efficient means of transporting goods that we have on Planet Earth.

     

    Union Pacific Corporation (NYSE: UNP) is still chugging along. It's the largest railroad network in the USA, and although it no longer operates passenger service, many Amtrak trains use Union Pacific rails. Railroads enjoy some of the best moats on the planet. UNP is no exception. The company's debt is a reasonable 20% of its market cap, but with $1.7 billion in cash, 10 percent quarterly earnings growth, and EBITDA approaching $7 billion, the financial metrics are comfortable. At $95.16 a share, it's dipped a bit since July's high of $106.76, and is recommended at current levels.

     

    Organic farming has been making a gradual comeback for decades. Modern pesticides are so strong that many conventional farmers will not feed their families chemically treated produce from their own farms. Additionally, organic foods do not contain GMOs, which may ultimately prove to do more harm than good.

     

    Whether you love or hate Whole Foods (NASDAQ: WFM), they are still booming, with quarterly earnings growth of 31.3%. Debt is a negligible $17.9 million to $654 million in cash - and is raking in an EBITDA of $843 million. The stock is currently trading at $63.55, and as the economy continues to recover, more environmentally concerned consumers are likely to do at least some of their shopping at Whole Foods. The valuation is a bit high at 24.4 times forward earnings, but WFM enjoys profit margins which appear to be at least 50% higher than the typical food retailer. The willingness of consumers who want organic food to pay extra for what they want provides some of Whole Foods' competitive advantage. I'm putting this on my watch list, as I would prefer to purchase it below $55.

     

    What are YOUR preferred industries?

    Nov 26 5:48 PM | Link | Comment!
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