Recently, Fortune and CNN Money released their latest survey on the World’s Most Admired Companies. This list, based on opinions of top business people has been largely considered as an accurate measure of company reputation and corporate performance. Amidst the roughest times, these companies have proven to be a hard nut to crack. They are also leaders of innovation, encouraging and performing new business ideas. Here is the list of top 10 companies with our thoughts on their market-beating potential:
Apple (AAPL): Apple sells media devices and personal computers as well as software and services worldwide. Apple doubled its quarterly profits in the last quarter. With an enormous market cap of $311.43 billion, Apple has a P/E ratio of 18.8, and a forward P/E of 12.7. The company had a whopping annualized EPS growth of 57.78% over the last five years, with a profit margin of 21.8%. While Apple is a terrific company, stocks currently trade for $330. We believe that the fair value for Apple shares is around the $300-$350 range.
Google (GOOG): The best search provider without argument, opening page of almost any internet user and the origin of the verb “to google”. If we need to say something about what this giant does, the answer is that it maintains an index of web sites and other online content for internet users. GOOG has a market cap of about $186 billion, and a P/E ratio of 21.8, while forward P/E ratio is 14.4. Google had an EPS growth of 39.28% during the last five years. Net profit margin in 2010 was 29.01%. Google is another over-priced high-tech company. The fair value based on an 11% discount rate is below $500, whereas shares trade for $580.
Southwest Airlines (LUV): Southwest is one the largest airlines providing services to 68 cities in 35 states. It managed to remain one of the world’s most admired companies when most of the airlines received bad press for increasing their fees. The market cap of LUV is $8.82 billion, and P/E ratio is 19.34, while forward P/E ratio is 12.3. Southwest had an EPS growth of 0.46% over the last five years. Net profit margin in 2010 was 3.79%, while the company offered a dividend yield of 0.10%. With a long-term EPS growth estimate of 7.5%, LUV has the market-beating potential. However, volatility in oil price is the biggest threat to future profits.
Procter & Gamble (PG): Procter & Gamble, a solid dividend stock, has been at the top 10 of the list since 1997. The market cap of Procter & Gamble is $174.01 billion, and P/E ratio is 16.93, while forward P/E ratio is 14.28. PG’s net profit margin was 14.06% and last year’s dividend was 3.10%. The company had a 9.13% of 5-year EPS growth. We expect PG to beat the market with a long-term EPS growth estimate of 9%.
Coca-Cola (KO): Recently, CEO, Muhtar Kent stated in KO's earnings report that Coca-Cola "met or exceeded all of our long-term growth targets for both the quarter and the year." The market cap of KO is $154.7 billion, and P/E ratio is 13.35, while forward P/E ratio is 15.8. KO had an EPS growth of 19.98% over the last five years. With a profit margin of 33.7%, KO had a dividend yield of 2.8% last year. Under the leadership of Muhtar Kent, Coke increased quarterly dividends by 3 cents.
Amazon.com (AMZN): Despite initial fears, the 3G Kindle was Amazon’s best-selling item ever. Moreover, Amazon continues to see growth, as CEO Jeff Bezos offered streaming video to Prime members. Amazon has a market cap of $83.39 billion, and a P/E ratio of 73.09, while forward P/E ratio is 41.3. Amazon had an EPS growth of 26.44% during the last five years. Net profit margin in 2010 was 3.37%. While Amazon is a fast-growing global company, the thin profit margins are the biggest threat.
FedEx (FDX): FedEx is one of the most reliable delivery companies with its high-quality service. With a market cap of $29.6 billion, FedEx has a trailing ratio of 22.6, while forward P/E ratio is 14.47. Although FedEx had an EPS growth of -4.42% during the last five years, analysts expect 14% EPS growth over the next five years. Net profit margin in 2010 was 3.44%, while the company offered a dividend yield of 0.50% over the same period. Given the current price of $92, the expected growth of FedEx is already priced in by the market.
Microsoft (MSFT): With amazing products rolling out every year like Xbox Kinect, Windows Phone 7, Bing and Windows 7, Microsoft gets one of the best ratings from CEOs. Microsoft has a low P/E ratio of 11.10, and it supports a forward P/E ratio of 9.49. Microsoft had an EPS growth of 13.34% over the last five years. Microsoft is an immensely profitable company with a net profit margin of 30.8%. Given the current price of $26, Microsoft is dirt cheap. We expect the stock to beat the market with a large margin.
McDonald’s Corp. (MCD): As a worldwide foodservice chain, McDonald’s operates more than 30,000 restaurants globally. McDonald’s has a market cap of $79.3 billion, and a P/E ratio of 16.6, while its forward P/E ratio is 13.8. McDonald had an EPS growth of 17.75% during the last five years. Net profit margin in 2010 was 20.55%, offering a dividend yield of 3.20%. McDonald is increasing its presence in emerging markets, which will further boost the profits.
Wal-Mart Stores Inc. (WMT): Although getting a bad rap sometimes, Wal-Mart still pulls in about $400 billion each year, while keeping on adding new markets. The market cap of Wal-Mart is $185.03 billion, its P/E ratio is 12.6, while the forward P/E ratio is 10.86. The company had an EPS growth of 8.96% over the last five years. Wal-Mart is a rock-solid dividend company which increased the quarterly dividends by 62 cents.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.