With All Due Respect - Barron's Looks at Wall Street's Most and Least Respected Companies

by: SA Eli Hoffmann

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

COVER STORY: A Good Name Above All: The World's Most Respected Companies by Vito J. Racanelli

  • Highlighted companies: Johnson & Johnson (NYSE:JNJ), General Electric Co. (NYSE:GE), Proctor & Gamble Co. (NYSE:PG), Toyota Motor Corp. (NYSE:TM), Berkshire Hathaway Inc. (NYSE:BRK.A), Microsoft Corp. (NASDAQ:MSFT), Genentech Inc. (Private:DNA), Google Inc. (NASDAQ:GOOG), Time Warner Inc. (NYSE:TWX), UnitedHealth Group Inc. (NYSE:UNH), Goldman Sachs Group Inc. (NYSE:GS), ExxonMobil Corp. (NYSE:XOM), The Home Depot Inc. (NYSE:HD), Altria (NYSE:MO), Hewlett-Packard Co. (NYSE:HPQ), BP PLC (NYSE:BP),
  • Summary: Barron's annual survey of the world's most respected companies: Polling 85 institutional money managers, Barron's examines the intangible notion of respect; who has the Street's respect, who doesn't, and what it takes to get it: What inspires respect? (in order of rank): 1) Strong management. 2) Sound business strategy. 3) Consistent sales and profit growth. 4) Ethical practices. 5) Competitive edge. Top of the ladder with key reasons: 1) Johnson & Johnson (JNJ)-- • reputation for integrity and brand quality • take the long-term view • nostalgia • recent refusal to enter bidding war over Guidant • double-digit returns for over 6 decades • diverse revenue stream • deep management and extensive executive tenure. 2) General Electric Co. (GE)-- • high-quality management/well run • strive to be #1-2 in every business they operate. 3) Proctor & Gamble Co. (PG)-- • stays ahead of the pack • attentive to shareholders • clear focus on marketing and direction. 4) Toyota Motor Corp. (TM)-- • clear vision • well run • financially sound • appealing product. Losers: Time Warner Inc. (TWX): • last place out of 100 companies • has failed to address problems arising from AOL merger • revenue restatements • plummeting stock value. UnitedHealth Group Inc. (UNH): • #97 down from 31 • allegations of option back-dating • overstated profits. Microsoft Corp. (MSFT): • from #3 to 22 • market still waiting for 'killer app.' • delay of Vista • has failed to compete with Google Inc. (GOOG). The Home Depot Inc. (HD) • from #15 to 67 • weak housing market • poor governance and inflated executive compensation • problematic options-grants. BP PLC (BP) • from #45 to 71 • pipeline spills and corrosion • accusations of market manipulation • imminent departure of CEO. Gainers: Altria (MO) • to #61 from 92 • share prices doubled since late 2004 • shareholder-oriented. Hewlett-Packard Co. (HPQ) • to #25 from 78 • 75% increase in share price since Mark Hurd installed as CEO • current allegations of news leaks and spying likely to set it back. Points of interest: • respect leads to... 1) repeat customers 2) quality employees 3) capital 4) lower interest rates on debt 5) the benefit of the doubt • with the exception of Goldman Sachs Group Inc. (GS), large financials fared poorly, as did telecom and oil companies • companies at the top typically rewarded shareholders and command high P/E multiples • high respect ratings correlated most directly with high multiples of futures earnings
  • Quick comment: In the P/E equation, one might say that investors take care of "P", while consumers determine "E". In the short-term, fluctuation in a stock's price in highly dependent on the sentiment of anaylsts, investors and money managers, the subjects of the Barron's survey. In the longer term, gaining customer respect is equally, if not more critical to a company's success. It is the customer who buys the products and pays the bills. With increasing frequency, companies are looking not only at how they can improve their product, but also at what they can do to increase customer loyalty. Looking at the top and bottom 50 companies, only 9 companies left the bottom 50 and moved above the halfway line, and a mere 5 dipped below the mean. This lack of movement suggests that respect, and lack thereof, once gained, tends to stick.