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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 3: Good Company, Bad Company

    The "boss from hell" stereotype exists for a reason - it has a strong basis in reality. Henry Ford's workers were spied on in their own homes, and Leona Helmsley once fired one of her husband's employees for taking an apple from the kitchen while working through lunch. 

     

    Supervisors, managers, and top executives may have the power to hire, promote, and fire, but employees form the backbone of any company. Mistreating them is not only wrong, it can ultimately harm the business itself. Exploited employees are not motivated to do their best work, and are very likely to leave as soon as they find a job somewhere else. Wronged workers might sue a business for discrimination, wrongful termination, overtime wages owed, or sexual harassment. Not only does this affect the bottom line, the negative publicity can spur consumers to spend their money with a competitor in the future. 

     

    The ethical investor's best move is to avoid such companies in the first place.

     

    One place to start is Fortune magazine's annual "100 Best Companies to Work For" list. It's a diverse list representing a wide variety of employers - this year's top companies include DreamWorks Animation and the Mayo Clinic. However, less than half the companies on the current list are publicly traded.

     

    Another resource for screening out ruthless companies is glassdoor.com. Glass Door offers a place for employees to anonymously post their employers' salaries, reviews, and interviews. Users don't mince words - if they were forced to work 60 hours per week and called in at 2 a.m., they will say so. If a company has good benefits but is plagued by communication issues, it will be in a review.

     

    One company that receives high marks from employees is Southwest Airlines (NYSE: LUV). While there are a few disgruntled reviewers in the mix, Southwest employees generally praise the company's leadership, communication, benefits, pay levels, and job security. Southwest offers very inexpensive airfare and generally good service with no additional fees. It's in a great position to benefit from travelers' slashed budgets and impatience with other airlines for some time to come. Southwest, unlike its competitors, has stayed profitable for decades, and is now the country's largest domestic carrier.

     

    Southwest has $3.7 billion in cash to $4.2 billion in debt - more debt than I prefer, but with EBITDA at $1.5 billion, I think they can handle it. Forward P/E is decent at 11.4, and the stock is currently a low $8.85, and EV/EBITDA is a very favorable 4.8. While I would not call Southwest stock a potential cash cow, I do believe it is worth holding onto for the long run.

     

    Contrast that with Hertz Global Holdings (NYSE: HTZ). This car rental agency receives mediocre reviews from its employees, who consistently complain of 50-to-60 hour work weeks, low pay, poor communication from management, being unable to take breaks due to frequent understaffing, routine overbooking of cars, and high turnover.

     

    Poor communication can ruin any company, and high turnover means more money spent on recruiting and training new employees on a regular basis. Disrespect towards employees isn't Hertz's only problem. The company has a whopping $11.7 billion in debt and a low $750 million in cash. With EBITDA at only $1.1 billion, Hertz simply has too much debt. Hertz's largest customer, the US government, is poised to severely curtail its travel budget, and top competitor Enterprise could go public at any time. The combination of bad employment practices and poor financials make investing in Hertz a non-starter (unless you want to short the stock).

     

    Southwest Airlines treats its employees and customers right, and will likely continue to reap the rewards.

    Tags: LUV, HTZ, travel
    Oct 27 11:14 PM | Link | Comment!
  • Ethical Investing, Lesson 2: All About Balance Sheets

    It isn't enough to invest in a company simply because it is ethically appealing. If ethical investors do not also look at a company's balance sheet, they run the risk of buying shares in a company that is not financially sound. While I firmly believe that ethical businesses are deserving of support, a weak balance sheet places the business, employees, shareholders, and other stakeholders at risk

    What makes a balance sheet strong? Start with cash, then move down to a strong working capital position (current assets minus current liabilities). Finally, look at the long-term debt position - lower is better. Included in the legacy that Steve Jobs left for the world is one of the strongest balance sheets imaginable. Apple (Nasdaq: AAPL)'s stock price has skyrocketed since 2005, but more importantly, Apple has $28 billion in cash and absolutely no long-term debt. It doesn't get much better than that. 

    Apple is also highly focused on ethics. The company routinely examines ways to reduce its use of environmentally harmful substances, its use of raw materials, its carbon footprint (including the lifetime carbon footprint of its consumer products), and its packaging. In fact, Apple is the only manufacturer whose products all exceed EnergyStar efficiency guidelines. Apple designs longer-lasting products (which require less frequent replacement), recycles old computers, offers refurbished Apple products for sale, and insists upon safe disposal of e-waste. The company is also socially responsible, requiring that their products be made in safe factories where workers are treated with respect. (I recognize there have been some problems at Foxconn, but I view these in the context of the sheer magnitude of their manufacturing operations.) The Enough Project, which recently rated electronics companies' efforts to avoid using conflict minerals, ranked Apple second only to Hewlett-Packard. 

    Skeptical investors may believe that Apple's stock isn't going to rise much more than it already has. I believe they are underestimating Apple, especially since Steve Jobs' passing. The company culture values innovation, and Apple will continue to create new products and services and refine its current offerings. (In fact, I passed the Apple Store tonight and there was still a long line for the iPhone 4S.) It will be interesting to see how the iCloud storage service plays out, and I for one look forward to seeing what the company develops next.

    Some might think that Apple stock is not a bargain, but it is an ethical investment to hold for the long run. The stock price has recently corrected to below $400, but its P/E is reasonable at 15.5. Despite an earnings disappointment in the most recent quarter, earnings growth is still excellent, and the company continues to roll out new products on a regular basis.

    Put simply, Apple has been very good to its investors, employees, customers, and the environment, and shows no signs of slowing down.

    Disclosure: I own Apple shares and intend to hold onto them for a very long time.

    Oct 21 11:11 PM | Link | Comment!
  • Ethical Investing, Lesson 1: Mission Statements

     

     

    When I consider buying a particular company's stock, I like to read its mission statement first. Mission statements can say quite a lot about a company, and vague ones strike me as shady. What I look for is a clear mission statement with a commitment to ethics.


     

     

    The way a company is run, the way it interacts with the community, and the manner in which it regards the environment all have tremendous impact. One company with clear awareness of its place in the world is Intel Corporation (Nasdaq: INTC). Intel's mission statement reads "Delight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live." Intel doesn't just create new technology, it keeps pushing the envelope. The company has a used computer donation program benefitting schools and some nonprofit organizations, and Intel employees give the company generally good reviews on glassdoor.com. Intel is also working to reduce their usage of water, energy, and gas; recycle 80% of their waste; and make their products more energy-efficient.

     

    Intel is a great company, but one part of its mission statement has not yet come to pass: its stock is still undervalued. In business since 1968 - longer than Apple, Microsoft, or Cisco - Intel is the world's largest supplier of microprocessor chips, which are used by both PCs and Macs. The company also makes Bluetooth chips, flash memory chips, motherboard chipsets, and network interface cards - all of increasing importance in a world which becomes more interconnected and tech-reliant every day. Intel is finally getting into the still-exploding smartphone market, and acquired both McAfee and Wireless Solutions last year. Relentless delivery of platform and technology investments, indeed.

     

    Intel's financial position is more than stable, with over $11 billion in cash and only $2.4 billion in debt. Currently, the company's EV/EBITDA is only 5.2 times. If you prefer P/E, the forward number is a low 9.5, confirming the stock's good value. Intel's stock has bounced from the high teens to the low twenties, and is a buy under $25. 

     

    I believe that when Intel's importance is once again recognized, particularly when smartphone technology puts the company back on the map, investors will scramble to buy shares. Intel's board of directors has bought back $5.5 billion in stocks over the past year. A certain degree of patience is necessary for the time being, especially with PC sales slumping in First World countries, but every good technology stock eventually sees corrections in value. It's been a long time since the famous "Intel Inside" ad campaigns of the 1990s, but Intel is still here, and still doing a pretty good job of fulfilling its mission statement.

     

     

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Oct 13 10:41 PM | Link | Comment!
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