The general intent of this blog and my investing is to focus on smaller companies where an individual investor can gain an edge. As I always say though “size doesn’t matter, price does.” While I’ve discussed bigger companies, such as Loews, Owens & Minor is a company that is already recognized for its strong business judging by its valuation. Sporting a PE of 15.5, a dividend yield of 2.6% and trading at 2x book value, it is nothing to get excited about. It would be an exciting opportunity though if it were to encounter short-term business issues or the stock drops due to an earnings miss or broad sell off.
Owens & Minor is a distributor of medical care products – gloves, tubes, exam table paper, shoe covers. They operate on razor thin margins but have high inventory turnover. They sell products that hospitals need, and develop deep relationships with healthcare providers. They have a logistics business which helps their customers reduces inventory to operate in a leaner fashion. While this might seem counter intuitive for the company, it entrenches them as the provider for a lot of that inventory. The company is one seventh and one tenth the size of its competitors Cardinal Health and McKesson respectively, but has managed to carve out its own niche and boasts higher net and operating margins.
The company has been around for over 100 years, a reassuring sign. The past 5 years have seen double digit growth in sales and earnings, while the past 10 years have averaged high single digit growth in sales and earnings. For such a boring company, the results have definitely been noteworthy. The company has consistently increased its dividends, a small indicator that the company is shareholder friendly and not too capital hungry. Although the theme is well worn in the investing world, the demand for these products will only go up as healthcare use increases with an aging population. It is hard to imagine the very minimal cost items O&M sells coming under scrutiny for cost cuts, especially when it helps its customers maintain lows costs through its logistics business.
While it doesn’t appear to offer a good investment opportunity currently, one never knows when a good company like O&M will find itself on sale courtesy of Mr. Market, a dear friend to us all. While better bargains might emerge in such an occasion, it is always worthwhile to be aware of businesses that have consistently increased their earnings over time and through whatever the economy has in store. While there are better businesses out there, I think every investor should be familiar with what companies they can. When the market gets dicey, from a psychological standpoint it is much better to already have an idea of what companies you would buy at a cheaper price. It is also much better from a time standpoint because you don't have to hurry through research on top of having your mind clouded with recent events.
Talk to Andrew about stocks to watch
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