While admiration and respect are certainly no guarantees that a public company will deliver quality investment performance, the value of such qualities should not be dismissed lightly. And after the 2008 market year part of the "lost decade" for equities during 2000-2009, respect and admiration are two traits not many want to bestow on corporate America. As such, in light of Fortune magazine's annual ranking of the World's Most Admired Companies list, it might be a good idea to examine the names at the top.
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Not to Be Taken Lightly
While at first it might seem that being on this list is more akin to a popularity contest, Ken Chenault, CEO of American Express (NYSE:AXP), sees it differently. Chenault, who's company ranking of 29th is all the more impressive considering that its one of a few financial names on the list, remarks, "The competitive advantage of trust has never been more important or more valuable."
In fact, it's interesting to know that along with American Express, Goldman Sachs (NYSE:GS), JP Morgan (NYSE:JPM), and Wells Fargo (NYSE:WFC) also made the list. Coincidentally, all four of these financial institutions were the handful of names that managed to avoid the worst of the financial crisis. (For more, see Competitive Advantage Counts.)
The Top Dogs
In examining the list, one notices very little turnover. According to Fortune, turnover in 2010 was 10%. Additionally, 17 companies have managed to stay on the list since it's inception a decade ago. The number one slot went to Apple (Nasdaq:AAPL), who earned the top slot three years in a row. Rounding out the top five were names like Procter and Gamble (NYSE:PG) and Amazon.com (Nasdaq:AMZN). Interestingly, all of the above names have delivered phenomenal returns over the past decade against a flat market.
Of course, being on the list is not guarantee of future investment success. While Amazon is a fantastic business, a high level of admiration is not enough to warrant a investment at the current valuation of 63 times earnings. More so, Toyota Motor (NYSE:TM) is number seven on the list despite the consumer backlash the company is currently facing over product safety issues.
Seek and You Shall Find
Respect and admiration in the corporate world from peers and competitors are sure signs that a company is doing something right. Investors should treat this list of names just they would any other list: a great source of ideas, not to be mistaken for a buy list. After all, popularity does have its setbacks - namely an expensive price tag. (For more, see Which Is Better: Dominance Or Innovation?)
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