When a large corporation makes it to one of Fortune's lists, it could be just good luck. Making to a second list, it could be that this corporation does something right. But making it to the "Blue-Ribbon," to four or five lists at the same time, it could be that it excels in many things. But does excellence translate to superior equity performance? Should investors buy, sell, or hold Blue Ribbon companies?
To answer these questions, we look at seven companies that topped both last year's and this year's this year's Blue-Ribbon lists, making it to five of Fortune's lists (Fortune 500,Global 500, World's Most Admired Companies, 100 Best Companies to Work For, 100 Fastest-Growing Companies, and 100 Most Desirable MBA Employers).
Six out of these seven companies saw their stocks rising in 2012, beating the S&P 500, while three lagged the S&P500. Past performance isn't always indicative of future performance, however. That's why we have to look at each company separately.
1. American Express (AXP)
American Express has a good balance sheet and a well-recognized brand, especially overseas. The problem, however, is that AXP has a great deal of competition from Discover, Visa and Mastercard issuers that offer customers money back on their purchases, and no annual fees. I will avoid it, especially after an 18 percent jump last year.
2. Google (GOOG)
Google, another promising technology company, is facing its own issues that cloud its immediate future:
- Weak Economy. Google's revenue comes mostly from sales of advertisement space, which are discretionary in company budgets. This means that a weak economy or an outright recession will make a big dent in Google's revenue.
- Move into Manufacturing. With the purchase of Motorola Mobility, Google now both a software and a hardware company.
While this strategic move may help Google to compete efficiently and effectively against Apple (AAPL), it raises serious questions as to whether the company can become a good manufacturer and its blend its business model well with Motorola Mobility's.
Developing search engines and advertising and operating platform systems requires a more liberal and entrepreneurial organization that allows employees to experiment with new things with little supervision. Manufacturing mobile devices, on the other side, requires a less liberal organization that defines the different tasks employees must perform under extensive supervision, which includes close monitoring and control.
- Regulation issues. After settling regulation issues in the US, Google continues to face issues in Europe and Asia, especially Korea and China. I will avoid the stock, especially after its big run-up over the last twelve months.
3. Intel (INTC)
Intel is fallen technology angel, suffering from the shift of the industry from PCs to mobile devices. Recently, however, Intel has come up with new products to catch up with the trend, and is expected to benefit from Microsoft's launch of Windows 8. Intel's low PE (9.98) and 4.63 percent dividend yield makes it a good investment even among conservative investors.
4. Microsoft (MSFT)
Microsoft is another fallen technology angel, suffering from the shift of the industry from PCs to mobile devices. The company has been trying to move into mobile communications with a partnership with Nokia (NOK), but it doesn't seem that promising, as Apple and Google already dominate the industry.
Recently, however, the company launched its own mobile devices while rolling out Windows 8. Microsoft's stock deserves a good look by aggressive investors.
5. Cisco (CSCO)
Cisco, a fallen angel from the dot-com era and long-rumored as a turnaround, is facing its own problems: the transition from and emerging to a mature company; growing competition from Alcatel-Lucent (ALU), Hewlett-Packard (HPQ), Juniper Networks (JNPR) and Huawei Technologies Co.; inability to keep up with competition; and its own leadership issues. But with earnings improving, Cisco is a trading buy.
6. Amazon.com (AMZN)
As we wrote in previous pieces, Amazon is still an ascending angel from the dot-com years. The company has demonstrated a remarkable ability to reinvent itself and expand into new business, including reading devices that may end up gaining an edge even against Apple. Amazon's immediate future, however, is challenged by extremely low operating margins; the shifting of the book sales industry from hard copies to e-books, an area with fewer barriers to entry; a loss of focus as the company is trying to compete head to head with Apple in wireless devices, a business outside its core competence. While Amazon may be a short-term buy, as institutional investors try to hold on to winning stocks for the end of the year "window dressing," I will be cautious over the long-term, especially because of the company's razor-thin margins.
Apple is the undisputed leader in modern wireless mobile devices, especially in the smartphone market, where it regained market share after the launch of iPhone 5. The question, however, is whether things will continue get better for under the new leadership. Apple is facing further potential competition from Google, with acquisition of Motorola Mobility that is expected to create Apple's first serious challenge in the iPhone market, especially in emerging markets. Already Dell Computer (DELL) and Baidu (BIDU) have teamed together to manufacture and market Android-based phones in the Chinese market; that's why Apple is a trading Buy until there is a better visibility on leadership transition.