The Best Places To Work: Delivering Strong Results Compared To The S&P 500 Over 10 Years

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by: App Economy Insights
Summary

Since 2009, Glassdoor has released a yearly ranking of the "best places to work" based on their own data collected from employees.

Investing in Glassdoor's best places to work would have more than doubled your money compared to investing in the S&P 500.

Looking into the 20 best-ranked public companies over 10 years, 60% have beaten the S&P 500, and 91% had positive returns up to June 2019.

By hearing it straight from the horse's mouth, you can invest in great businesses with outstanding culture and management over the long term.

Investment Thesis

This article is a follow-up to my initial investment thesis that the best stocks to buy are the best places to work.

My first article was an introduction to conscious capitalism and focusing on the top-ranked public companies in Glassdoor's best places to work in 2019 and looking at their performance.

Ultimately, to be able to consider the way employees praise their company and CEO as a legitimate indicator for portfolio allocation, we have to look at their performance after they made the list.

To do so, I looked at all previous Glassdoor rankings available, from 2009 to 2018, and analyzed the top public companies and their subsequent stock performance over the years.

Looking into Glassdoor's 20 best-ranked public companies each year over 10 years (therefore, 200 stock picks), the result of my research confirms the original thesis and shines an interesting light on the sheer quality of this selection methodology.

Over 10 years:

  • The top 20 best places to work returned 2.1x the returns of the S&P 500
  • The top 10 best places to work returned 2.6x the returns of the S&P 500
  • 60% have been beating the S&P 500
  • 91% have delivered positive returns

Not only has this market-beating performance been consistent over the years, but this screener proved to trim effectively most big losers out.

Many readers will still find these results anecdotal, or suggest that this performance is the sheer result of luck or filled by a historical bull market that is unique to the past decade.

I beg to differ. Luck is weak explanation once you factor 200 stock picks over 10 years. And, a similar analysis run by Fortune all the way back to 1998 showed that even through multiple credit cycles, the companies most praised by their employees more than doubled the performance of the S&P 500.

My intent isn't to claim that selecting through Glassdoor's rankings should be the only way you invest. Only that it should educate your investment decision, just as much as many other quantitative and qualitative factors.

Many investors focus solely on valuations and price momentum to educate their decisions. But if you invest for the long term, knowing the intrinsic quality of the businesses you are holding in your portfolio should be your priority. And, that includes inherent qualities such as culture and leadership.

Let's go through the numbers.

Best places to work glassdoor 10 years Netflix Facebook Google Costco NetApp Salesforce Workday Lululemon Citrix Adobe Intuit Illumina HubSpot stock performance

Image Source: App Economy Insights

A word for those who say: "it's because they pay a lot"

It's not all about salary and bonuses. Would you give a five-star review to a restaurant just because it was affordable? No, because price is only one aspect of the experience. The same applies here.

As illustrated by the study provided by Glassdoor SVP of People Allyson Willoughby, there are multiple drivers to employee happiness:

  • Mission: a sense of purpose in coming into work.
  • Collegiality: working with awesome people.
  • Challenging work: being stimulated by the work to be done.
  • Meaningful advancement: the promise of growth.
  • Confidence in senior leaders: a sense of trust and transparency with management.
  • Perks: good pay, free food, a beer cart or two.

I have seen comments in my previous article suggesting that employee happiness was likely to trigger complacency and underperformance (of the employee, therefore, the business, and, ultimately, the stock price). I have to make it clear here: I cannot disagree more with this notion.

I'm grateful to live and work in the San Francisco Bay Area, where you can encounter on a weekly basis people with amazing talent in your professional and personal life, working on breakthrough innovation in healthcare, finance, cloud software and more.

The most talented people I've had the chance to meet in the Bay are not the kind of people who would become complacent because of their high salary or comfortable schedule. They're self-driven people who like to be intellectually challenged. They want to be part of the conversation. They want to be inspired by their management and feel at ease to express their full potential. They flock to the companies that have the highest reputation because they want to be treated fairly and be aligned with the direction of the business.

Complacency doesn't come from high job satisfaction or happiness. It comes from complacent management, lack of challenging goals, lack of interesting coworkers or no interest in the company's mission.

On another note, some readers have argued that these stocks perform well because they are great businesses, resulting in happy employees (i.e., their stock performance came from the fact that they were great businesses first). Would these companies be as great as they are without having kept their employees happy, to begin with? Culture is the first foundation of a thriving business.

Methodology

First, you can read more about Glassdoor's website and methodology here.

From 2009 to 2017, Glassdoor ranked the 50 best places to work in the US. That number expanded to 100 best places to work starting 2018.

Company selection

I looked back at all of Glassdoor's best places to work rankings available, from 2009 to 2018. From there, I selected companies as follows:

  • Excluded private companies or companies that were not yet public within the year following the rankings (no stock price to track).
  • Excluded companies that were owned by a much bigger company.
  • Excluded companies that were bought out since there is only partial stock performance.
  • Selected only the first 20 companies applicable for each year for consistency over time (some years only had 20 public companies applicable in the ranking).

The result is a list of 20 companies every year from 2009 to 2018, therefore, 200 stock picks over 10 years.

Timing

Glassdoor reveals its yearly rankings for the best places to work for the coming year in December. Therefore, I picked January of the year for any given ranking as the starting price and analyzed the stock performance moving forward.

When I call performance LTD (Life To Date), I look into stock performance all the way to 6/15/2019 (date of this article being written).

Performance

The numbers below are based on stock performance averages, meaning that these companies are assumed to be equally weighted, regardless of their market capitalization. This analysis was built via Google Finance stock price over time, therefore, excludes dividends.

Summary of findings

I have assumed $1,000 invested at the beginning of January every year from 2009 to 2018. I've looked into the following KPIs:

  • Returns from $1,000 invested in the S&P 500 (SPY).
  • Returns from $1,000 invested in the top 20 best places to work.
  • Returns from $1,000 invested in the top 10 best places to work.
  • % of places among the top 20 public places that beat the S&P 500.
  • % of places among the top 20 public places that deliver positive returns.

I look at the returns all the way to 6/15/2019 for any given year.

Here is the summary of 10 years of performance:

Image Source: App Economy Insights. All returns calculated via Google Finance from beginning of January of each ranking year up to 6/15/2019.

In a nutshell, over 10 years:

  • The top 20 best places to work returned 2.1x the returns of the S&P 500.
  • The top 10 best places to work returned 2.6x the returns of the S&P 500.
  • 60% of the top 20 public companies have been beating the S&P 500.
  • 91% of the top 20 public companies have delivered positive returns.

Let's dig deeper and look at some of the companies behind the numbers.

Performance throughout the years

To keep this article concise, I will break down the details of three specific years:

  • 2009, the first and best one: 3.7x the S&P 500 returns up to 6/15/19.
  • 2011, the worst one: 0.8x the S&P 500 returns up to 6/15/19.
  • 2018, the most recent one: 3.1x the S&P 500 returns up to 6/15/19.

Here are the selected top 20 public companies in Glassdoor's best places to work and their stock performance moving forward.

Let's start with a detailed review of the first and best year, class of 2009:

2009 RANKING TICKER 1YR 2YR 3YR 5YR LTD
S&P 500 SPY 22% 37% 37% 97% 211%
1 General Mills (GIS) 17% 18% 35% 63% 77%
3 Netflix (NFLX) 79% 507% 169% 1115% 7856%
4 Adobe (ADBE) 61% 37% 23% 157% 1091%
7 Google (GOOG) 95% 87% 108% 244% 576%
8 SAP (SAP) 29% 39% 48% 130% 249%
9 Continental Airlines (UAL) 8% 115% 56% 237% 634%
10 NetApp (NTAP) 131% 288% 141% 173% 313%
11 Intuit (INTU) 26% 102% 114% 211% 942%
13 FactSet (FDS) 46% 105% 91% 138% 550%
15 Procter & Gamble (PG) -3% 3% 6% 28% 77%
16 Caterpillar (CAT) 25% 100% 102% 91% 171%
19 Apple (AAPL) 136% 265% 356% 496% 1387%
20 Juniper Networks (JNPR) 47% 101% 12% 23% 44%
21 Marriott (MAR) 39% 107% 63% 160% 615%
22 Nike (NKE) 23% 58% 85% 194% 529%
25 Chevron (CVX) 3% 20% 44% 63% 58%
26 Goldman Sachs (GS) 99% 99% 9% 105% 121%
27 Nordstrom (JWN) 161% 193% 244% 327% 124%
28 Citrix (CTXS) 76% 175% 154% 156% 399%
29 Schlumberger (SLB) 47% 79% 52% 94% -21%

Stock performance calculated via Google Finance up to 6/15/2019 LTD.

Here are the results once you average the performance of these 20 stocks:

LTD performance up to 6/15/2019

The class of 2009 has beaten the market with consistency over time, more than doubling the S&P 500 returns over one, two, three or five years and reaching a performance of 3.7x the market returns over a period of 10 years.

Attentive readers will point out that Netflix alone carries a significant part of the performance of the best places to work, but to be fair, Netflix was included in the S&P 500 end of 2010. The point of stock picking is precisely to find these outperformers.

I insist here that we are not looking at the performance of these companies in a vacuum and systematically compare them to the S&P 500. What I'm focusing on is the alpha delivered by these companies.

Let's continue with a detailed review of the worst year, class of 2011:

2011 RANKING TICKER 1YR 2YR 3YR 5YR LTD
S&P 500 (SPY) 0% 15% 44% 58% 128%
2 Southwest Airlines (LUV) 18% -23% -4% 272% 364%
4 General Mills (GIS) 0% 14% 17% 47% 51%
9 Overstock.com (OSTK) 21% -45% 9% 72% -30%
14 Shutterfly (SFLY) 93% 29% 76% 131% 180%
15 NetApp (NTAP) 68% 4% 0% 17% 78%
17 Goldman Sachs (GS) 0% -45% -24% 9% 11%
19 National Instruments (NATI) 28% 23% 33% 54% 101%
20 Apple (AAPL) 54% 93% 153% 248% 530%
21 Analog Devices (ADI) 20% 14% 37% 72% 228%
23 Procter & Gamble (PG) 6% 9% 13% 47% 82%
24 BB&T (BBT) 4% 0% 16% 45% 94%
25 Synopsys (SNPS) 20% 18% 42% 90% 456%
26 Chevron (CVX) 16% 39% 39% 37% 53%
28 Bristol-Myers Squibb (BMY) 4% 34% 30% 129% 86%
30 Google (GOOG) -4% 7% 15% 64% 246%
31 Travelers (TRV) 12% 18% 47% 109% 201%
32 Fluor (FLR) 47% 13% 31% 27% -36%
35 John Deere (DE) 49% 44% 58% 54% 170%
36 Qualcomm (QCOM) 7% 19% 37% 57% 46%

Stock performance calculated via Google Finance up to 6/15/2019 LTD.

Here are the results once you average the performance of these 20 stocks:

LTD performance up to 6/15/2019

The class of 2011 is the only year out of the 10 that has not performed better than the S&P. The top 20 best places are reaching a performance of 0.8x the market returns over a period of 8.5 years.

You would have still doubled your money over that period, and the performance comes very close to the market returns. Not too bad for the worst class of the decade.

Let's conclude with a detailed review of the last year, class of 2018:

2018 RANKING TICKER 1YR 2YR 3YR 5YR LTD
S&P 500 SPY -7% 8%
1 Facebook (FB) -25% 0%
5 Google (GOOG) -5% 2%
6 Lululemon (LULU) 55% 122%
7 HubSpot (HUBS) 40% 92%
11 SAP (SAP) -12% 14%
15 Salesforce (CRM) 30% 44%
17 Delta Airlines (DAL) -12% -1%
23 Southwest Airlines (LUV) -29% -22%
24 Nvidia (NVDA) -32% -27%
26 AvalonBay (AVB) -5% 17%
28 Blizzard (ATVI) -27% -29%
29 Paylocity (PCTY) 25% 99%
30 Intuit (INTU) 23% 60%
31 Adobe (ADBE) 26% 54%
33 VMware (VMW) 7% 32%
34 Forrester (FORR) -3% 1%
38 Johnson & Johnson (JNJ) -8% 1%
39 Microsoft (MSFT) 18% 54%
40 Hilton (HLT) -11% 17%
52 Eli Lilly (LLY) 36% 32%

Stock performance calculated via Google Finance up to 6/15/2019 LTD.

Here are the results once you average the performance of these 20 stocks:

LTD performance up to 6/15/2019

The class of 2018 is off to a fantastic start. Despite a negative year for the market in 2018, the best places to work of 2018 managed to achieve positive returns and delivered 28% returns up to 6/15/2019, that's 3.7x the S&P 500 returns over 18 months.

Conclusion

The best places to work that trade publicly have more than doubled the returns of the S&P 500 over the last 10 years.

For any investor who hasn't been able to achieve such a performance over the last decade, it can be sobering to see such a simple, yet powerful selection of companies to deliver such an outstanding source of alpha over time. And, the analysis from Fortune going all the way to 1998 confirms that it's more than a bull market fad.

So, what to make of this data? While I already factor Glassdoor reviews whenever I consider a new investment - if anything, as a screener to avoid the ones that have very poor reviews - it compels me to look at my portfolio with a critical eye and look even more for excellence in all aspects of the businesses I'm invested in. And, I hope it will help me make better investment decisions moving forward.

  • What do you think of the performance of the best places to work over the last 10 years?
  • Will you be looking at the rankings moving forward?
  • Will you consider adding companies that are praised by their employees, given their market-beating performance over time?
  • What is your current portfolio allocation to companies celebrated as best places to work?

Let me know in the comments!

Disclosure: I am/we are long AAPL CRM FB GOOG GS HUBS NFLX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.