In Focus

I Was A Moron For Ignoring Enron

NOTE: June was a month for buying. So for the whole month, we will be going into detail on the companies that we recently considered for our quarterly Chick "buy." We ended up purchasing stock in Medtronic (MDT) on June 3, 2001, but there were many, many great companies that didn't get our majority vote. We wanted to highlight them as it was a close call and they are still up for consideration for our next buy in September. For more on the companies that were considered, and what we'll be featuring all month, check out our summary.

A couple of months ago, I wrote an article about investing in utilities. I admitted that despite being from California I don't have a clue about the energy crisis. No matter where you live, though, I think we can agree there's a problem. You may not be suffering from the temporary blackouts that Californians have endured, but all our pocketbooks have been bled dry trying to pay energy bills. For this reason, one of the companies I chose to research for the Chicks' June 4th buy meeting was Enron (NYSE: ENE).

Ugh. What was I thinking? Even if they'd passed all of the Chicks' Dozen criteria, their flagrant violation of the "Keep It Simple Sister" rule would have barred them from our nest. And based on the numerical data, this company was simply not a candidate for the Chicks Laying Nest Eggs portfolio. They have razor thin profit margins (GM = 3.93, NM = 0.85) and huge amounts of debt compared to their cash reserves. They seemed so totally unchicky that I barely mentioned them the week before our big buy. I owe the Chicks in my club an apology. I dropped the ball. Since I was a tad bored with the research and the numbers weren't up to snuff, I felt Enron wasn't worth my time, so I skimped on the research. I now realize that I had forgotten one of the most important purposes of our club - to learn! Yes, the primary reason each Chick analyzes four new companies per year (one per quarter) is to see if they're worthy of our group investment dollars. But another reason we pool our research is so we have the opportunity to learn about forty new companies per year! I can name at least three stocks I have in my personal portfolio thanks to the research from my fellow Chicks.

I only chose to dig deeper into Enron because of this article assignment. What I discovered was a company I wish I'd told the Chicks more about. How could I have ignored a company that has been named the "Most Innovative Company in America" by Fortune magazine six years in a row, and whose CEO just ranked 2nd on Worth magazine's "Top 50 CEO's" list? I found that what makes them so innovative is also what makes them so hard to understand. Most of the things they are doing have never been done before.

On Enron's own website, they admit to being difficult to define, saying the closest they have come is this: "we make commodity markets so that we can deliver physical commodities to our customers at a predictable price." Huh? Basically, they do one thing - trade commodities. They are best known for their natural gas and electricity products, however they have begun to move into other industries as well. These include metals, paper, pulp, lumber, bandwidth capacity and steel. In terms of sales, Enron has become one of the 15 largest companies in the world! Wow, if they're ranked that high, wouldn't ya say they're lacking in brand recognition?

Their new CEO is trying to put them on the map. Jeff Skilling is the 47-year-old charged with running what many consider the largest energy trading company on the planet. Who would have thought that this same guy was one of the real-life counterparts of Saturday Night Live's infamous sketch, Wayne's World? That's right, back in Aurora, Illinois at age 15, Skilling was the teenage cameraman that shot the pirate TV show that SNL went on to spoof much later. Apparently he still has a penchant for the small screen, only now he's atop a 50-story tower in Houston and his face is the one onscreen. He uses it as a tool for gathering input from all levels of his staff, such as discussing major topics like whether or not to shave his beard! Skilling is described as a driven man determined to make his company number one. Last year the company's sales jumped 400% from three years earlier. (Probably thanks to California!) Enron's vision statement once read "to become the world's leading energy company." Skilling has changed it to say "to become the world's leading company," period. He's a big thinker and Chicks gotta like that.

Skilling was promoted to CEO last February, having served as president since 1993. His predecessor, Kenneth Lay, is now company chairman. Skilling is "Mr. Inside," busy running the company, while Lay is "Mr. Outside," handling most of its public relations. The other night, I happened to catch Nightline. They were discussing the whole energy crisis and sure enough, there was Mr. Lay. (See how fun it is to be a Chick? You turn on the TV and feel like you know these people!) Despite the finger-pointing from California, Enron maintains its strong belief in the economic benefits of open, competitive wholesale markets. In fact, Enron has taken an active role in creating them.

In November of 1999, Enron embraced the Internet and began EnronOnline. Although it cannibalized its own traditional business of trading by phone, they figured better them than the competition! EnronOnline has been a complete success, having recently completed its one-millionth transaction. Sixty percent of all their transactions are now done online and processing costs have been reduced by 75 percent. EnronOnline has actually created the benchmark for the way energy and other commodity industries do business. Oh, how we love a top dog!

There you have it, Chickies, my assignment completed. We have all learned at least a little bit about another stock. Hopefully, I'll learn from this quarter's negligence and do the research next time if only for the sake of research. So what if their numbers weren't totally Chicky? I found a profitable company doing exciting things -- what more could a Chick want? Yeah, yeah, I know... bigger profit margins and tons of cash! Must we all be so dang goal oriented all of the time? Or maybe that's just me...