The Best Tech Stock I Don’t Own (Yet)

Apple may have created the iPhone – the gold standard for smartphones – but Apple is not the world’s largest smartphone company. It’s Samsung (OTC Markets: SSNLF), which has also surpassed Nokia to become the world’s largest mobile phone company.

Samsung’s Galaxy smartphones outsell iPhones, and the New York release of the new Galaxy S4 drew the same long lines that are normally associated with Apple fanatics.* Never mind that Samsung phones dominate the Asian market, particularly in China. (Despite Chinese consumers’ insatiable desire for Apple products, most iPhone models can’t be used on the state-owned China Mobile network, which has a 3G standard unique to China.)

Samsung doesn’t just make phones, of course – the company is highly diversified. They do well in televisions, make nice washing machines (full disclosure: I use a Samsung washer and dryer), and I’m told their refrigerators are excellent.

It would take too long to cover all of Samsung’s products and services, but I will mention a couple that are of particular use to ethical investors. Samsung offers fire, marine, accident, casualty, automobile, and life insurance, which are something of a necessity in the modern world. But, my personal favorite is Samsung’s expansion into LED lighting (Samsung’s high-end televisions also use LEDs). Like CFL bulbs some years ago, LEDs come with a price tag that may shock consumers used to incandescent bulbs. However, they last for a VERY long time, use extremely low wattage, and offer better light quality than most fluorescent lights. Not only are they more ecological, they are very economical in the long run. (Although a bit beyond this entry, I feel it’s worth mentioning that Buckingham Palace switched to LED lights for its facade in 2007 – and since the LED bulbs have a 50,000 hour lifespan, they are expected to last approximately 50 years with little to no maintenance.)

Samsung has also decided to investigate all of its Chinese suppliers to ensure their labor policies are being followed, and specifically intends to make sure no children under age 16 are employed in the suppliers’ factories. Labor is always an issue with any product made in China (case in point: Foxconn), but Samsung is still one of the few tech companies to do something about it.

Samsung also has an outstanding balance sheet – more than twice as much cash as debt, strong (but not unsustainable) growth, a healthy profit margin, and P/E just under 10. The stock’s price tag – $1,375.00 per share – will put off plenty of investors, but it’s actually pretty cheap, and I like it under $1,400.00.

Investors should note that Samsung is based in Seoul, South Korea. If hostilities between North and South Korea worsen, then South Korean companies may take a hit. Depending on severity, it might be a great buying opportunity.

*Calm down, Apple fans…I’m writing this on a Macbook, and I never go anywhere without my iPod.

**I do not own Samsung stock and currently have no plans to invest.

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Back Soon

Dear Readers:

I have a cold. My next entry will be posted as soon as I have a clear head again.

Thanks for reading!

Aria M.

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Taxing My Patience

I regret to inform my readers that I have had to scrap this week’s pick, as well as next week’s.

Earlier today, I received this article, listing 30 companies that are not paying a cent in taxes. I had previously intended to profile Honeywell (NYSE: HON), due to the company’s high-quality air purifiers (greatly appreciated by wheezy asthmatics and pollution-afflicted city dwellers). I had also slated Corning (NYSE: GLW), a noted glass manufacturer, for next week.

However, neither company is paying taxes this year. In fact, despite billions of dollars in revenue, both are receiving large refunds.

I hasten to add that I don’t yet know WHY neither company is paying taxes, and the reasons may very well be perfectly fair (given the sheer complexity of the US tax code, this is not impossible). I will need some time to investigate the matter before I can recommend either company to ethical investors. (I was also surprised to see a previous pick, Boeing, on the list.)

Please bear with me in the meantime, and I will be back next week with a different pick (and a few words on a recent, relevant book).

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Vintage Wisdom, Part 3

I’ve finished 100 to 1 in the Stock Market, and couldn’t resist sharing a little more advice from Thomas Phelps. Specifically, in Chapter 14, “Where to Look for the Big Winners,” Phelps lists several suggestions for finding such stocks, basing his list on the previous forty years’ “big winners.” Among them are:

4. New and cheaper sources of energy such as kerosene replacing whale oil, fuel oil replacing coal, and electricity generated by atomic power replacing them all.

Before anyone cries foul on environmental grounds, please remember that the book was written in 1972. It would be a few more years before Jimmy Carter had solar panels installed at the White House, and quite a few more years before solar power became feasible for everyday consumers (and as I’ve stated before, I believe that the solar industry will see its weaker companies die off, like smaller auto companies in Detroit’s early days). Hydroelectric, geothermal, wind, and nat gas are growing, and are all worth watching as more consumers adopt them. (Also, technology that increases energy efficiency could be worth serious consideration.)

5. New methods of doing essential old jobs with less or no ecological damage. An example is the use of sterilized insects to wipe out a pest rather than employing chemicals harmful to many desirable forms of life.

Organic farming, anyone? How about no-VOC paint, hybrid cars, and plastic-free food containers?

6. Improved methods or equipment for recycling the materials, including water, required by civilized man instead of making mountains of waste and oceans of sewage.

This area includes several of my favorite picks – Pall Corp. (water purification), US Ecology (safe disposal of hazardous waste), and Covanta (creating energy from garbage and recycling scrap metal). I am sure I will find more, since the human race has yet to stop creating waste.

7. New methods or equipment for delivering the morning newspaper to the home without carriers or waste, yet having it instantly available for review at later dates. Few items have less value for most of us than yesterday’s newspaper, but millions of them are printed daily in a form that can be bound and preserved for many years by that tiny fraction of subscribers who want a permanent record. For that we chew up forests.

Phelps surely couldn’t have foreseen the internet, let alone the rise of online news and the resulting decline of print media. We now have the technology to preserve every newspaper ever printed and have it readily accessible by date and relevance within seconds. It’s a bit late to invest in Google or Yahoo for many of us, but as the amount of information available online continues to grow, more places to store that information will be needed. That means server farm and cloud computing technology (and, thankfully, less paper in need of recycling).

I know where I’M going to be looking for the next 100-to-1 companies.

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Vintage Wisdom, Part 2

Already I can hear growls from those who believe corporations must assume a larger social responsibility. So do I. But I want my companies to do it in addition to making money, not instead of.

- Thomas W. Phelps, “100 to 1 in the Stock Market”, 1972

Smart ethical investing is not about people vs. profits. It’s about people AND profits. It’s about a healthier planet AND healthy returns.

I wish more investors understood this.

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Getting Bizzy with the Fizzy

Trying to explain ethical investing can be a little frustrating.

“Why don’t you write about X Company?” They’re not publicly traded.

“What about Y Company? They’re soooo green!” No, they’re not. They greenwash a selection of their products. “What?! No they don’t!” Yes, they do. See, there’s lots of proof.

“[Expletive deleted]. What about Z Company?” Well, I’d like to write about them, but they’re not well-run and don’t have a sustainable business model. I can’t recommend a stock that’s likely to tank.

Lest any readers think I’m exaggerating, I had the unedited version of this conversation with a friend of a friend at a party two years ago.

“Well, why are you pandering to all these corporate giants? Why not any small companies?” Let’s get one thing straight – I pander to no one. I examine the options and cherry-pick what I consider to be the best choices. Since global dominators are more likely to see good returns and last for more than a few years, they are going to pop up on this blog from time to time.

But, there are small-cap companies that are worth considering. One of them is SodaStream (NasdaqGS: SODA).

SodaStream is a simple enough company to understand: they make machines that turn still water into fizzy water – or, if you use one of their flavor packets, fresh soda. Making soda at home drastically reduces the need for beverage containers (did you know that only one-third of plastic bottles are recycled?), and the carbon footprint of shipping the machines, packets, and carbon refill canisters is lower than that of shipping soda (due to the water weight). The cost of homemade SodaStream soda is about half that of bottled soda, making the product desirable to penny-pinching consumers who don’t want to give up carbonated drinks. And SodaStream’s flavor packets are sweetened with stevia, a natural, zero-calorie sweetener from South America, so they are healthier than the corn-syrup-laden bottled sodas found in stores.

While a SodaStream machine isn’t the sort of thing households run out and buy regularly, like bread, the company does have steady income from its existing customers in the form of carbon refill cylinders, not to mention flavor packets. (Full disclosure: I previously worked for a brick-and-mortar store that sold SodaStream machines and swapped out spent cylinders for new ones. We may not have sold a machine every single day, but we did a roaring trade in cylinders – on busy weekends, we ran out of new ones. Since the cylinders cannot be mailed, customers generally prefer to exchange them with a local retailer rather than deal with ground shipping.)

I’m not going to lie – SodaStream faces tough competition from beverage industry giants like Coke and Pepsi. However, its market share has grown steadily for years – the company has topped earnings expectations for the past eight quarters.

At $48.75, the stock isn’t cheap right now, but it’s worth watching. P/E is 24.7 – higher than I would normally consider. However, forward P/E is closer to 18. The company is profitable, has no debts, and is growing significantly – 67.6% last quarter.

Target, Kohl’s, and Wal-Mart have recently joined several other brick-and-mortar retailers in exchanging SodaStream carbonators. Given their price-conscious customer base, this is not surprising.

I consider SodaStream a “buy” at current prices. I believe that 1) more households will purchase and use the machines as time goes by, and 2) recurring revenue from exchanging carbon cylinders will underpin the stock’s value. But buy it before a certain scheduled Super Bowl ad airs…

(Apologies to rock band Garbage for paraphrasing their song title, but I just couldn’t resist. I do not currently own Sodastream shares but am considering a purchase.)

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Vintage Words of Wisdom

Ask yourself whether the company in which you contemplate investing is contributing to making this a better world. If the answer is no, avoid it like the plague…No matter how tempting the prospect, how alluring the chance for a quick profit, stay away from men, companies, and ventures based on defrauding rather than helping their customers.

- Thomas W. Phelps, “100 to 1 in the Stock Market”, 1972

Well said.

While Phelps’ book is now somewhat dated (Chapter 14 is titled “Why Computers Won’t Run the World”), this is sound advice, for reasons previously discussed here. Chapter 15, titled “Profits in Ethics”, is worth a read (and contains the above quote), should you happen to stumble upon a copy of the book.

(If any readers think Phelps was some kind of puritanical moral crusader, be advised that in Chapter 3, he mentions having shot African elephants for ivory in the 1920s.)

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Two Hares and a Tortoise

Everyone knows the fable of the tortoise and the hare. While the hare, being swift by nature, may be the heavy favorite, the tortoise wins in the end.

I learned about finance from two hares: my father and my brother. Dad has an MBA in finance from a prestigious university, taught corporate investing at two other schools, and has worked as a chief financial officer for as long as I can remember. My brother also studied finance, developed an interest in stocks at a pretty young age, and is a respected financial writer.

I’m the tortoise in this story – I am not as good at math as either of them, I didn’t buy my first stock until I was 17, I studied a different field. Anyone who doesn’t know me very well might assume I wouldn’t be a very good investor.

A year ago Dad had the idea to test out a “family portfolio” – not a real one, mind you, but an experiment. We took turns picking stocks, and have been charting their progress ever since. (Note: returns are calculated from date of “purchase” – that is, when they were added to the portfolio. They are not annualized.)

Dad was a little too enthusiastic about gold stocks, and wound up in the red (minus 4 percent!). His worst performers included Zimtu Capital Corp. (TSXV: ZC), down a whopping 58% and Golden Predator (TSXV: GPD), down 38%. Canadian gold was apparently not the way to go in 2012. Another poor performer was Guide Exploration Ltd. (TSXV: GO), an oil company that fell 51%. Dad did make some good choices, though – Pan American Silver (Nasdaq: PAAS), up 23%, and Mart Resources Inc. (TSXV: MMT), a small oil company based in Nigeria and up 55%.

My brother’s picks were more successful, and he averaged a 9% return. Like Dad, he was a little too hopeful about gold stocks – his one big stinker was Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), down 33%. But, he smartly balanced it out with Silver Wheaton (NYSE: SLW), up 30%; Siemens (NYSE: SI), up 29% (and one of the ethical companies I’ve blogged about); and ABB Ltd. (NYSE: ABB), up 28%.

There are many people who assume that ethical investing doesn’t mean making any money, and it’s true that ethical companies tend to be on the small side (more on that in the future). But careful selection can still yield healthy returns.

I chose my stocks VERY carefully, thoroughly analyzing each one. If I found a company I liked but wasn’t sure about their numbers, I’d watch the chart for a few months and then decide. It served me well – this tortoise crossed the finish line with a 12% return!

Dad suggested that two waste management companies in my selection might be one too many, but since US Ecology (NasdaqGS: ECOL) rose 23% and Covanta (NYSE: CVA) rose 30%, I stand by both choices. NRG Energy (NYSE: NRG), a diversified energy provider (their sources include some wind and solar), also did very well with 38%. To my own surprise, humble little Jarden Home Brands (NYSE: JAH), makers of mason jars (among other household goods), rose 44%! I knew the company was undervalued, but a 44% gain was higher than I expected. I did have one big loser: Westport Innovations (NasdqaGS: WPRT), a low-emission engine company with a foothold in the natural gas vehicle market, fell 23%. However, we haven’t seen the last of the movement towards natural gas.

Now that I’m done gloating, I’m off to go look for more ethical companies worthy of investment. If I don’t get an early start and work hard, the hares might beat me this year.

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I’m An Environmentalist and I’m Recommending an Oil Company

Yes, you read that correctly.

I’d love it if every community on Earth could produce enough clean, safe, renewable power to meet all of its energy needs, but in the vast majority of cases, we are simply not there yet. Oil and natural gas companies are going to be with us for a while.

Some of these companies pollute. Some of them have been linked to questionable business practices, especially in other countries.

And one is about as close to a model corporation as an oil company can get.

I first read about Statoil (NYSE: STO) in an article about Scotland’s plan to have 100% renewable energy by 2020. Scotland’s eastern coast is on the North Sea, known for its strong winds and becoming something of a renewable-energy hub shared with several neighboring countries – chief amongst them Norway.

I recently blogged about Norway’s sovereign fund, which hasn’t suffered in the least from focusing on ethical companies. Statoil is a Norwegian company, and the government owns 67% of the company’s shares.

Statoil is the world’s 13th largest oil and gas company – not a global dominator, but it has other good points. A look into the company’s history showed far fewer controversies than most oil and gas providers (I have yet to find an energy company with a spotless record).

Statoil’s Hydrogen Technologies division is a leader in alkaline electrolysis technology (creating hydrogen and oxygen from water), which could eventually replace depleted fossil fuel reserves. The company has also begun branching out into biofuels, wind power, and geothermal energy.

Perhaps most impressively, Statoil has publicly stated a goal of “zero harm to people and the environment” and is backing it up with careful water management, waste management, attempting to reduce emissions from their facilities, capturing and storing carbon dioxide, and integrating environmental monitoring on a daily basis.

Some companies flagrantly violate human rights in faraway countries. Not Statoil. Their corporate policies stipulate human rights and fair labor conditions, including the rights of indigenous people who may be affected by Statoil’s operations. The company belongs to the Business Leaders’ Initiative on Human Rights, and supports the United Nations and Amnesty International.

And it gets better: Statoil has an outstanding balance sheet. P/E is excellent at 5.7, and the company pays a 4.1% dividend. I would prefer it if Statoil had a little more cash and a little less debt, but their debt is more than acceptable given the company’s high market cap and the equipment-intensive nature of their operations. Statoil’s production is also rising, and will likely continue to rise due to recent successful exploration in Tanzania, the Gulf of Mexico, and along the Norwegian continental shelf.

Statoil’s current price is $22.70, and although I would love to snatch it up at a lower price (I am considering selling the October $20 puts), I consider it a good buy under $25. Oil wells and wind farms take time to build, so it may take a few years, but I believe Statoil will deliver healthy returns.

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Scandinavian Sensibility

When we think of sovereign wealth funds, ethical investing doesn’t immediately come to mind.

I hope to help change that with this entry, since the world’s third-largest fund maintains a strong stance against unethical business practices.

Norway has considerable oil and gas revenues from the North Sea, and saves them in the country’s sovereign fund. The Norwegian government realizes that the oil and gas supply is finite, and is investing the money for future generations. How many countries ever even consider saving money for the immediate future, let alone the long haul?

To avoid overstimulating the nation’s economy, the Norway fund invests in companies based elsewhere. The fund has dropped holdings in financially unstable countries like Greece to minimize potential losses. Better still, a mere 4% of the fund (the estimated long-term rate of return) goes to the national budget, except in times of crisis. The rest of the fund is invested and will continue to compound for many years.

Most people wouldn’t expect an oil and gas fund to support environmental issues, but the Norway fund has taken an activist approach, strongly encouraging the energy and utility companies in which it invests to make greener changes. Climate change is a major concern for the government of Norway – the country has already pledged $1 billion to Brazil to help save the Amazon rainforest (and still has an estimated $60,000 per citizen in the fund).

The Norway fund has also drawn a few lines in the sand, declining to invest in companies with any involvement in child labor, human rights violations, or production of nuclear, biological, or chemical weapons. Over 30 companies have been dropped for unethical business practices or corruption, most famously Wal-Mart (for its infamous labor policies).

This is not surprising for anyone familiar with Scandinavian countries and their cultures. They are consistently among the least corrupt nations on Earth. Human rights violations are virtually unheard of. With the exception of two terrorist attacks last year, Norway has very little crime. A significant amount of the country’s power is generated by hydroelectric dams, which are much greener than fossil fuels. Norway has even chosen to shut down its fur industry.

If it were possible to invest in Norway’s sovereign fund, I would do it in a heartbeat. This is exactly how I’d like to see more investors approach the market – buy stocks from ethical companies, sell any that aren’t financially stable enough to see good returns, engage in shareholder activism to promote improved business practices, and drop stocks in companies that decline to implement positive change. The Norway fund is doing just that, and I commend its managers.

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