Stock-In-Trade
Working at Home
January 21, 1998

If you've been around stock investing very long you've probably heard about the Foolishness of finding a "razor and blade" company. If you haven't been around investing very long, have I got a story for you! Plus a great company to use as an example: Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>.

The theory behind the "razor and blade" idea is that you should look for a company which makes a product that serves a useful, everyday purpose, like a razor. The kicker is that they practically give away this product to their customers. Why is that? Because where they're really going to be making money in selling the upkeep products that work with their gizmo. In the case of a razor, that would be the blades.

If you work at home (or at least have a home computer) you probably have bought one of those cute little color printers from Hewlett-Packard. They're not very big, they don't cost very much, and they can print about six pages a minute. You can get a really good quality one for about $250. Depending on where you get your computer, chances are that the retailer will throw one in for free just for buying a whoop-de-doo system.

If you have a printer from Hewlett-Packard and have owned it for more than a month, you've also discovered a very disturbing thing. They practically eat those little ink cartridges. And how much do those little guys cost? Oh, about $30 from your favorite office superstore.

But wait! There's more!

The printers actually have two ink cartridges. One that's black and one that has all of the cool colors in it. The problem is that whenever you print something out you're using up the black one, and whenever your munchkin prints something out she's using up the one with the pretty red and blue in it. And once one color is gone (say she keeps printing out pictures of huge pink elephants over and over), you have to get an entire new color cartridge. Forget that she's never printed a yellow elephant in her life. The color cartridge is now trashed and off you go, Visa card in hand, to Office Max. And what's worse is that HP has all of these free add-on art software packages aimed at kids to convince them to print even more pink elephants!

What a strategy! If I hadn't given them so much money for ink cartridges (at least one new one every month) I'd be really impressed with Hewlett-Packard. Actually, I am pretty impressed with them even if my bank account isn't.

They do other things than just make gazillions of little ink cartridges. They just happen to be the largest manufacturer of printers in the world. They also have a lock on UNIX-based computers. HP is No. 16 on the Fortune 500 list of U.S. industrial and service corporations, and is the country's No. 10 exporter. They have more than 120,000 employees and had revenue of $42.9 billion in their 1997 fiscal year. Currently 24 analysts follow them with a consensus rating of "Outperform."

In a recent press release they also informed us that, "More recently, HP also became a world leader in computing solutions for the home and small office. A new global consumer brand strategy, 'Expanding Possibilities,' showcases HP's strength as a creative entity appealing to families with children as well as to small-business, micro-business and home-business owners."

Uh, right. We're intimately familiar with that strategy.

Go check them out at HP's web site to see what's going on with them, and then come back over to here and talk to other Fools about how many ink cartridges you've bought this month and how much money you've made from their stock.

--Trudy Bowen (TMF Hoyden)