At first there might not seem to be anything tying a agricultural seed producer, a technology company and a sanitation company, yet, as we'll learn, there is one aspect common to all - the fact that "high-touch", personalized sales coverage can convert anything into commercial success.

High-touch sales is a response to the overly automated and computer-driven style of sales and customer interaction (hi-tech) that has become common. Today many people feel the human touch is lacking, and that people respond better to face-to-face personal interaction. It may sound more expensive, but in the long run the theory is that it will make you money. In this article we'll look at three companies buying - and cashing - in.

Growing Sales Presence
Agricultural product company Monsanto (NYSE:MON) has certainly enjoyed the high correlation of commodity prices to its share price, as commodity prices have risen significantly in recent years. The efforts of its high-touch sales force in selling its products have amounted to over $8.4 billion in sales. That's a market-cap-to-sales ratio of 4.6 and a price/earnings multiple of 37-times. (To learn more, check out Analyze Investments Quickly With Ratios.)

Monsanto's core competency of research and development (R&D) is complimented by ongoing investment in expansion to accommodate capacity, leveraging its existing products into others and mostly, having its sales force foster close working relationships with the farming community to help create a more entrenched customer base.

When averaged over they last five years Monsanto's revenue growth is 5.3%. Over the three-year period it comes in at 13.1%, and it came in at 16.7% last year. Earnings growth has been equally impressive with 13.8%, 42.7% and 58.6% for the same periods. Monsanto has a net margin of 12.6% from a gross margin of 49.1% and finally this boils down to a 13.4% return on equity.

Selling Notepads - Lots and Lots of Notepads
How do you create a top selling product used in every office, from glue that failed to stick? Create Post-It note pads. 3M Company (NYSE:MMM) with a market cap of $66.4 billion is still regarded as a top R&D firm able to apply technology across multiple product lines. But it is 3M's 3,000-person sales force that makes that $23.7 billion in sales happen.

3M made a conscious effort to funnel research and development funds to its highest-margin and fastest growing segments. That policy decision has resulted in record margins for the firm as again, the sales force came through. The only thing holding 3M back is its potential liability to asbestos masks it manufactured between 1950 and 1970.

While 3M's revenue growth has hovered around 8% for years, its growth in earnings has gone somewhat south, averaging 23.1% over the last five years, 18.8% for the prior three, but rebounding to 21.6% last year. From a gross margin of 47.9% the firm sees an operating margin of 28%, a net margin of 18.4% and a very impressive 42.4% return on equity.

Highly Motivated Sales Force
Ecolab (NYSE:ECL) is cleaning up with its industrial and institutional sanitation-solutions businesses. With a market cap of $10.1 billion, Ecolab generates $5.1 billion in sales for just over a 10% market share. What separates Ecolab from its competition is its sales force, at least in the United States.

The U.S. sales force is highly motivated, as a large portion of their wages come in the form of incentive compensation. The sales force uses a high-touch approach that is appreciated by its customers and results in a good deal of repeat business. According to the company's Q2 earnings release for 2007, consolidated sales were up 11% compared to the year ago period. However, Europe is another story. International sales were only up 7%. My opinion is the sales force in Europe does not have the fire in the belly that its U.S. counterparts have, and it shows in the sales. The company is doing its best to remedy that situation as it is a drag on revenue and profitability.

Revenue growth, while averaging 15.8% over the prior five years has declined to 9.2% for the last three and 8.0% last year. Earnings have been more erratic, coming in at 14.6%, 10.5% and 16.3% for the same respective periods. Ecolab sees a net margin of 7.7% from a gross of 50.8% and an impressive 25% return on equity.

No Substitute for Sales
There is just no substitute for a well-trained and highly motivated sales force. While Monsanto and 3M devote considerable sums to their R&D efforts, and have succeeded to an extent, Ecolab focuses on its sales force, and this has propelled the company to success with relatively little R&D cost.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!