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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 6: Lawsuit Land

    Many years ago, my parents were acquainted with an obnoxious character who maintained a comfortable lifestyle by deliberately falling down and suing the owner of the property or business where he fell. "Bob" never worked a day in his life and was actually proud of his parasitic existence, loudly boasting of his ill-gotten gains to anyone within earshot.

     

    Everyone has heard of people like Bob. We scorn frivolous lawsuits, and may be cynical about any lawsuit against a business. It's true that any company can be sued, and that companies with deep pockets are especially desirable targets for the Bobs of the world. However, an excess of litigation may indicate a deeper lack of ethics.

     

    One company that has been targeted by a long list of lawsuits is Bank of America (NYSE: BAC). Institutional Risk Analytics reports that Bank of America faced 3,285 lawsuits in 2010, making it the third most frequently sued company in federal court (first and second places go to General Electric and Goodyear). Bank of America has been sued for a wide variety of improper behavior, including, but not limited to:

     

    • Reneging on a promise to modify troubled mortgages as a condition of accepting $25 billion in federal bailout money
    • Failing to give permanent loan modifications to qualified homeowners
    • Foreclosing on homeowners who were paying their mortgages on time
    • Foreclosing on homes that did not have mortgages at all
    • Assuring customers seeking loan modifications they would not be foreclosed upon, then foreclosing upon them anyway
    • Falsely telling customers they must be in default to qualify for a mortgage modification
    • Intentionally postponing homeowners' mortgage modification requests

    But wait - it gets worse. Bank of America has also been sued for:

    • Securities fraud (i.e. misleading shareholders about its lending practices and finances)
    • Intentionally withholding government funds intended to save homeowners from foreclosure
    • Charging excessive overdraft fees
    • Violating California state laws against false advertising and unfair business practices
    • Failure to pay more than $100 million in overtime and other employee wages
    • Violating the Employee Retirement Income Securities Act 
    • Refusing to correct a bank error for a terminally ill customer, thus making it impossible for the customer to pay rent or buy food
    • Participating in a suspected Ponzi scheme

    Bad, bad Bank of America!

     

    It's no wonder Bank of America stock is trading at a paltry $5.78, down from its all-time high of $54.85 in 2006. My, how the mighty have fallen! With $606.64 billion in cash to $740.25 billion in debt, and with substantial legal settlements on the horizon, Bank of America cannot count on long-term financial stability. (Of course, even though Bank of America is a defendant in multiple federal, state, and consumer lawsuits, they are so big that we cannot underestimate the stupidity of the government in bailing them out and suing them at the same time.)

     

    Bank of America clearly has little or no respect for their customers, their hourly employees, the federal government, or the law. Between settlements, court costs, and legal fees, they will pay for it. Clearly, this is not a company of interest to the ethically minded. Investing in Bank of America stock is about as wise as inviting Bob to your house after you've had the floor waxed.

    Tags: BAC, banks
    Nov 20 7:57 PM | Link | Comment!
  • Ethical Investing, Lesson 5: Changing the World, One Car at a Time

    I've been taken to task by some of my fellow environmentalists for driving a Volvo instead of a hybrid. When my old car died in early 2005, my first choice was the Toyota Prius. However, the waiting lists were very long, and there was the pesky matter of needing to get to work in the meantime. I opted for a Volvo instead. When it's time for a new car, I'll finally get that Prius. Toyota has sold more than one million Priuses to date in the United States alone, and will probably sell another million before we know it.

     

    Toyota Motor Corporation (NYSE: TM) is a fantastic company for ethical investors. They plan to make a hybrid option for every model they produce by 2030, and have relentlessly pursued ways to make their vehicles greener and more efficient. Plug-in hybrids and all-electric models are currently being developed, and would likely sell very well due to rising gas prices and growing environmental concerns. The company also makes and converts vehicles for handicapped consumers. Toyota's values include respect for and development of employees, and they receive generally good reviews on glassdoor.com. Unsurprisingly, Black Enterprise magazine recently named Toyota on its annual "40 Best Companies for Diversity" list. Toyota is also a philanthropic company, supporting literacy programs, scholarships, the National Underground Railroad Freedom Center, and the Toyota Technological Institute. Their employees in Japan have generously donated to tornado relief efforts in Alabama and Mississippi, despite the fact that the Japanese factory was negatively affected by the earthquake and tsunami not too long ago. Remember the recent ads inviting the public to suggest new uses for technology Toyota developed? The company doesn't just make cars - they are actively committed to improving the world.

     

    Despite flurries of bad news, including yesterday's recall of half a million vehicles, Toyota's financial position is stable. The company does have $147 billion in debt to $39 billion in cash, but with an EBITDA of $16 billion and gas prices continuing to rise, I consider Toyota's debt acceptable. The demand for hybrids will continue to grow, and even Toyota's non-hybrid vehicles will continue to sell well because they are efficient, safe, reliable, and affordable.

     

    Toyota stock isn't for cheapskates, but at the moment it is significantly lower than its 12-month high of $93.45. Today's price of $64.12 isn't at all bad. Although the trailing P/E is 38.9, the forward P/E is a very acceptable 14.6. I believe Toyota will come back, and ultimately dominate the global auto market. Therefore, now is a good time to invest for the long term.

     

    Toyota makes great cars, is a good employer, donates generously to a variety of good causes, and has done more for the environment than any other automaker. Their excellent work will keep them on top, and patient ethical investors can expect to share in the rewards.

    Nov 12 6:36 PM | Link | Comment!
  • Ethical Investing, Lesson 4: All That Glitters

    Lorelei Lee's diary entry for April 17, 1925 reads, in part, "…I thought I had almost one of everything until I saw a diamond tiara." Eighty-six years after the gold-digging heroine of Gentlemen Prefer Blondes got her hands on that diamond tiara (and plenty of other expensive jewelry), the trade is still roaring. Despite lack of regulation in some countries and the controversy surrounding conflict minerals, we simply don't want to stop buying diamonds. Wealthy Chinese consumers in particular are snapping up high-end jewelry in large volumes.

     

    Is it possible for the ethical investor to profit from the roaring trade in diamonds without supporting conflict minerals? Yes. In fact, it is easy.

     

    Diamonds are not just found in Africa - the world's third largest diamond producer is Canada, where safe working conditions and fair wages are the rule, not the exception. A number of publicly traded companies have mining operations in Canada, giving ethical investors several options. (De Beers, owned by Anglo American Plc., is excluded due to the company's history. I have also excluded pure retailers such as Blue Nile and Tiffany & Co.*)

     

    The Newbies

     

    I'm keeping an eye on Olivut Resources Ltd. (TSXV: OLV.V), a newer company with mines in Canada and South America. Olivut's HOAM Project operates in a previously unexplored region of Canada's Northwestern Territories, and has already discovered 23 kimberlite pipes (i.e. lava from underground volcanoes that carries diamonds to the surface). It's also a female-friendly company - two of Olivut's five directors, including the CEO, are women.

     

    With a market cap of $38 million, Olivut is still one of the little guys (or girls). This is a development-stage company with no revenue to support the valuation. However, at $1.20 per share, the stock represents a call on future discoveries.

     

    Also worth watching is Stornoway Diamond Corp. (Toronto: SWY.TO), which has mining and exploration projects dotting northern Canada. Stornoway is a little more established than Olivut, with a market cap of $177 million, and is also run by two women. Stornoway does have nearly $25 million in cash, which it continues to burn off. As with Olivut, the $1.49 share price represents a call on future production.

     

    Both companies are small, and in their early stages. Therefore, they are highly speculative companies in which to invest.

     

    The Jeweler to the Stars

     

    Fabled New York jeweler Harry Winston is owned by Harry Winston Diamond Corporation (NYSE: HWD), which jointly owns Canada's huge Diavik Diamond Mine with Rio Tinto Plc. The company retails diamonds under the Harry Winston brand, and also sells rough diamonds to the global market. 

     

    Harry Winston is a more established business, with a $1 billion market cap. The trailing P/E is rather high at 50, but the forward P/E is only 11.7. The company has a manageable $357 million in debt to $140 million in cash. The stock price of $12.00 will set you back less than Harry Winston jewelry, and appears to be a reasonable value. I also like the fact that insiders own 26% of the stock.

     

    The Big Guy

     

    Harry Winston's partner in Diavik, Rio Tinto Plc (NYSE: RIO), has mining sites all over the world. Rio Tinto mines diamonds, gold, silver, copper, iron, salt, aluminum, and industrial metals on every continent except Antarctica. 

     

    Rio Tinto is cheap - P/E is 6.6, and the company trades for 4.2 times its EV. The company has plenty of cash, and debt is manageable. At a price of $54, the dividend yield is 2%.

     

    The Verdict

     

    Investing in diamonds is not risk-free, and I don't recommend dedicating more than 1-2% of a portfolio to them. However, the explosion of demand for diamond jewelry in Asia (you know…China) can bring tidy profits to investors. Rio Tinto is the value stock in this group, but diamonds are a very small portion of its business. Harry Winston would be the choice for more pure consumer luxury play.

     

    *Full disclosure: I am a satisfied Tiffany & Co. customer.

    Nov 02 11:18 PM | Link | Comment!
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