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From 1977 until he retired in 1990, Peter Lynch guided Fidelity's Magellan Fund to an astounding average annual return of 29%. With results like that, when Lynch talks, it behooves us Fools to listen. In his best-seller, One Up on Wall Street, Lynch offers 13 characteristics of the "perfect" stock. He devised these criteria from some of his most successful picks over those years at the helm of Magellan.
Today, we will examine a micro-cap stock based out of Chicago: Female Health Co. (Nasdaq: FHCO ) , the manufacturer and distributor of the female condom -- its newest version being called FC2. While not nearly as well-known as its male counterpart, the female condom represents an interesting investment opportunity. A look at how Female Health fares in Lynch's 13-point test will show why.
1. It sounds dull.
Female. Health. Company. That's dull. Point
2. It does something dull.
Sorry. Sex, STDs, and unwanted pregnancies aren't dull. No Point
3. It does something disagreeable or gross.
Without getting into details, suffice it to say that Female Health easily earns this distinction. Point
4. It's a spinoff.
Before being Female Health Co., this company was known as Wisconsin Pharmacal Co., LLC (WPC). FHC purchased a British company in order to secure the worldwide rights to the female condom. No Point
5. The institutions don't own it; analysts don't follow it.
Currently, only 17.5% of shares are held by institutions and no analysts follow it. Point
6. Rumors abound.
Lynch wanted to point out that some industries, like garbage collection, might have shady connections with the mob. The same cannot be said of Female Health or the contraceptive industry in general. No Point
7. There's something depressing about it.
Around 11.6 million children from sub-Saharan Africa are orphaned due to AIDS. Though it's encouraging that Female Health, along with drug companies Merck (NYSE: MRK ) , Gilead Sciences (Nasdaq: GILD ) , and Abbott Laboratories (NYSE: ABT ) are making advances to remedy this problem, it's not a bright and shiny issue. Point
8. It's a low-/no-growth industry.
Female Health won't garner this point, especially because of the exploding international market in places like India, where sales of contraceptives grew 30% last year. No Point
9. It's got a niche.
Church and Dwight (NYSE: CHD ) owns the rights to the market-leading Trojan (male) condom, but FC2 is the only female condom endorsed for use by the World Health Organization. Point
10. People have to keep buying it.
Human nature is on this company's side here. Point
11. It's a user of technology.
When Lynch published his book in 1989, the Internet was in its infancy. Today, almost any company would earn this distinction. Point
12. The insiders are buying.
In the month of August, there were five separate insider purchases, and the stock is up substantially since their purchases. Point
13. It's buying back its shares.
Female Health is currently buying back 3 million shares of its own stock. Point
Congratulations go to Female Health, receiving nine out of 13 points. This does not, however, make Female Health an immediate "buy." Lynch didn't earn his results simply by passing all companies through a screen like this. It provided him with a starting point for his due diligence. By taking this information and starting your own research on Female Health, you'll be following in the footsteps of an investing legend.
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Report this Comment On October 19, 2010, at 9:43 PM, bluethinkinger wrote:
The key point for FHCO is:
Does the demand really come from users? Woman and their partners love to use the device or just government or Non profits pay and distribute the female condom? I am not sure.
I bought under $5 (before the first dividend) and sold at $7, and then when it went down $5, I bought again, average $5.10, probably will sell at around $ 6.5.
If the demand for female condom comes from the innermost of woman and their parters (rather than goverment asks people to use), I think FHCO will be a multi-billion company. But I do not know.
Report this Comment On October 19, 2010, at 11:46 PM, mikecart1 wrote:
Will not work as a stock. Condoms work. Condoms are the norm. This female condom is not going to be bought by poorer subgroups. The people that can afford it would rather go on the pill or just use the best condoms available. 3 thumbs down!!!
Report this Comment On October 20, 2010, at 1:44 PM, brewersfan81 wrote:
@bluethinkinger
I completely agree. I think at one point in time, use of the male condom was overlooked and thought to be outside the mainstream. Then AIDS hit and there were massive campaigns to bring the male condom into main stream use. FHCO needs to do the same thing. They just started selling their products at CVS in Washington DC to help combat the alarming AIDS probelm there. It will be interesting to see how well it sells, but the company will never have a chance to reach full potential if they don't team up with a public health outfit to enact a major public education campaign.
@mikecart1
I don't deny that if this doesn't catch on as a product that women would buy, it won't fare well in the long run.
Brian Stoffel (author)
Report this Comment On October 21, 2010, at 10:52 AM, bluethinkinger wrote:
"This female condom is not going to be bought by poorer subgroups."
-The reality is: the poor women, in developing countries in Africa for example, rather than rich women, are using female condom. Non-profits financially support that. In this condom area, payer and user are different. Furthermore, after FC2, the price is droping. One day, the price will not be a problem as the volume goes up. Again, the volume depends on whether people love to use this small thing - does this device have fun during sex? Government, or church or any other institutes, always wish people to live healthly, but only the demand from our nature of human being can build a great business. We buy iPhone because we love iPhone, not because goverment told us that iPhone is better way to call. Even government gives me an old motorola freely, I will not use it.
Brian,
do you have any insight that people love the female condom? I talked with 3 friends, they are OK to try, but no passion. I do not have experiences to use female condom, no first hand feeling.
Have a good day!
Report this Comment On October 22, 2010, at 1:04 PM, brewersfan81 wrote:
Blue,
I really don't at this moment. All I really know is that it has been described as more "user-friendly", if you will, than the FC1....significantly so.
Report this Comment On November 01, 2010, at 12:28 PM, rivka42 wrote:
Important point is that women in varias african countries will be happy to have the protection when so many men have refused to use protection even with fear of Aids. That was the feedback that excited me as an investment
Report this Comment On November 22, 2010, at 10:45 AM, smjcee wrote:
I agree with rivka42, this device allows women to have control and protect themselves even if the men dont (protect). I dont believe that ANYONE is excited to use the condom, whether male or female, it is strictly for safety and prevention; a necessity; that should NOT be solely up to the male's choice.
Whether this necessity will create a good stock for investment, I dont know. Whether it is a good choice for women; absolutely!
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