Millipore Corp (MIL)

How could I have been so unFoolish?

Yesterday, I was checking some of the stocks on my watchlists to see when their earnings reports were scheduled. One of the tickers on the earnings calender was MIL.

Now even if a stock is not on my watch list, I will usually take a quick look at any stock with an earnings report coming out to see if it is something I may want to add to the list When I realized that MIL was Millipore, I was a little upset with myself for not having thought of Millipore as an investment before.

I own a small biotech company which provides specialty serum and plasma products to the diagnostic and pharmaceutical industries. We use Millipore products every week! Almost every one of my associates or competitors use their products as well.

Some of you may think of Millipore as being primarily involved with water filtration. While that may be part of their business, I would venture to say that it is a smaller portion than the biological side, although I could be mistaken.

In the biotech industry, almost all of the products manufactured will be filtered at some point in the process. When it comes to filtration, there are only two companies that enter my mind. One is Millipore and the other is Pall. If there is another smaller player lurking out there somewhere, I am unaware of them. If I am unaware of them, then I would bet that other biotech companies are unaware of them as well. Even if we were aware of other potential filtration suppliers, it is highly doubtful that we would switch vendors. Here's why.

For any process being performed at a biotech company, we typically write a SOP (Standard Operating Procedure). This SOP covers the entire process from beginning to end, including the materials and hardware to be used. Before any such manufacturing procedure is finally approved, it must be validated. This means that the end product resulting from that procedure must meet certain standards and that the procedure used will produce consistent results time after time after time.

Once you come up with a procedure, associated hardware, materials, etc. that produce the desired results and you then validate that procedure, it is unlikely that you would make ANY changes to it. The SOP would have to be amended and the process validated all over again. Unless making a change will produce a significantly better or less expensive product, changes to these procedures are highly unlikely. That, my foolish friends is a MOAT.

Personally, I prefer to use Millipore over Pall. Their products are far more diverse, and the website from which I order products is incredibly informative and user friendly. A new competitor would have an impossible uphill battle trying to get me to try a new product. By the way, this also means that they could probably charge more for their products. The cost of which, I would have to pass along, because in my opinion, there is simply nowhere else to get these highly specialized products. (maybe I shouldn't let that cat out of the bag)

Forget the P/E. Forget the PEG. Concentrate on the moat!

I am adding this to my real portfolio next week. My only regret is that I didn't have time to add it before their earnings release. The shares went up over %8. I am still kicking myself.

Nobodezfool