If a company is on the up and looks like a winner for our portfolios, do we factor in the ethical implications? Chiquita Brands International (NYSE: CQB) is a great example. The company looks cheap, but years of scandals and, shall we say, less-than-ideal business practices warrant a deeper investigation into what it will do for your portfolio and your conscience.

Buying commodities and selling brands
That's a Buffett favorite, and it applies to Chiquita. Chiquita cultivates, packages, and distributes produce around the world under the famous Chiquita brand, as well as others. You can find the company's Fresh Express salad line in nearly every major grocery store. Ever since the iconic Chiquita banana woman sang her song and swung her hips, people have been hooked on the brand. Unfortunately, the branded banana company has also been associated with known terrorist groups.

Banana warfare
Chiquita's biggest problem lies far away from the balance sheet. The company pleaded guilty to charges of, intermittently throughout the 1990s, making payments to a radical paramilitary organization to provide security and other services. (Payments were made by a subsidiary company.) The hired group has been accused of kidnapping, torturing, and killing thousands in Colombian villages and is considered by many, including the U.S. Department of Defense, to be a terrorist organization. The company has already been fined $25 million by the U.S. government for its support of the group known as the United Self-Defense Forces of Colombia. Ongoing litigation on behalf of victims' family members and human rights organizations could continue to plague the company for years to come.

The issue is not unique to Chiquita; the companies operating in the banana republics are often compared to the cocaine cartels of the 1980s. So does this problem have something to do with the low valuation? Undoubtedly, but there are some other factors affecting Chiquita that are not quite so gruesome.

Profits hanging low
From 2010 to 2011, operating income took more than a 60% hit. One of the culprits is the lagging salad business. Grocers have been turning to private labels for their greenery needs, and it's hurting Fresh Express. Also, fuel and transportation costs dented the profit margins on all products, resulting in operating losses in the salad segment and slimmer profits for the banana and other produce segments.

How has the stock price reflected these movements and alleged death-squad financings? In a year, the stock has cascaded nearly 50% in value from $15-plus to today's price of $8.64.

Banana boomerang
It looks to me like Chiquita can turn things around -- financially, at least. On the salad front, the company is now providing grocers with their private-label needs. The Fresh Express line may be doomed, but that's OK if Chiquita is the one filling store's private-label bags. In fact, it's an advantage: Chiquita will reduce marketing costs and shift some of the product risk to the grocer.

Management is committed to improving the balance sheet via refinancing and paying down debt. During the last couple of years, long-term debt has dropped steadily -- a refreshing sight for a company so heavily dependent on short-term trends in commodities.

Chiquita also has a joint venture with Danone to make pre-packaged fruit smoothies with Chiquita-branded fruit in Europe. Smoothies are a big business; just look at how Naked and Odwalla's $4 drinks fly off the shelves at your local grocery store.

If the company's operations improve, can its valuation mature to something closer to that of rival Dole?

Dolin' on the river
At a market value more than twice that of Chiquita's, Dole (NYSE: DOLE) is the industry giant. The company's stock price spiked more than 5.5% in March after management announced slimmer-than-expected losses and the disposal of a distribution plant in Germany. Recent salmonella outbreaks and recalls brought the stock back down a bit, but the company still trades at a P/E of 21.43. Compare that to Chiquita's super-cheap P/E of 6.83.

Fruit on the bottom (line)
The legal expenses and social irresponsibility have real, material effects on the bottom line. With more and more attention going to where our food comes from, Chiquita needs to be more transparent and strive for ethically responsible business practices.

Whether or not it will, I can't say. But I believe that if Chiquita takes this step and disrupts the industry as it stands today, investors and customers will have more faith in the company. Once that happens, watch its valuations get in line with industry averages.

Chiquita has potential to be a great turnaround story if it successfully reorganizes some of its business lines.

What do you think about Chiquita and the banana republic? Should an investor stick to the numbers and leave saving the world to the activists? Sound off in the comments below.