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| Finance and oil were the two industries most dominant in BusinessWeek's fifth annual BW 50 ranking -- which measures the best performances among all the companies in the Standard & Poor's 500-stock index. And five companies showed up for the fifth year in a row: Morgan Stanley Dean Witter, EMC, Tellabs, Sun Microsystems, and Merck. The gyrating stock market pushed off a number of companies that had been on previous lists, including as Microsoft, Cisco, and General Electric.
One surprise appearance on the list was Bed Bath & Beyond, since retailers were generally absent from the list.
Two BusinessWeek editors -- Senior Writer Robert Barker (of the Barker Portfolio and barker.online columns) and Chicago Bureau Manager Joseph Weber -- made these observations in a live online chat presented on Mar. 29. Following are edited excerpts of their answers to questions from the audience and from Jack Dierdorff of BusinessWeek Online.
Q: How is the BW 50 chosen?
A: The BW 50 is the product of eight different measurements. We looked at one- and three-year growth rates for total returns to shareholders, sales, and profits. Then, we looked at net margin and return on equity. When we put them all together and weighted each company in the 500 for sales, we came up with the ranking. We weight the companies by sales because we recognize that it's harder for a big, multinational company to grow swiftly than for smaller fry. A good example of that is Exxon Mobil, a giant, that made the list.
Q: What sector was best represented in the BW 50 this year?
A: Finance and oil were the two dominant sectors this time.
Q: What companies have stayed the longest on the list, year after year, and why?
A: We had five perennials -- Morgan Stanley Dean Witter, EMC, Tellabs, Sun Microsystems, and Merck. These outfits have made every list since 1997. What's fascinating is that they are in such different fields. What they have in common is superb management and a very tight focus on what they do. The big question is which will return next year, of course.
Q: What company on the list was most surprising?
A: Bed Bath & Beyond is my nominee -- a fascinating retail outfit that makes the list when no one else in retail is doing well. BBBY is co-managed by a couple of industry veterans -- Warren Eisenberg, 70, and Leonard Feinstein, 64. They know retailing.
Q: Any other surprises?
A: One thing that surprised me about the 50 is that even though many of the big tech names such as Microsoft and Cisco dropped out this year, many of the companies are excellent users of technology. I'm thinking of such financial outfits as Providian Financial (No. 6) and Capital One Financial (No. 21), as well as drug distributor Cardinal Health (No. 25). All of these companies and more know how to use technology to boost efficiency.
Q: To what extent were the declines in the market and the economy behind changes in this year's list from 2000?
A: The market swing had a lot to do with the changes in the list this year. We look at total returns to shareholders, so stock price is a big factor, though not the only factor. Clearly it had helped Miscrosoft in years past and hurt it this year, for instance.
Q: Given all the changes that have happened this month, what company wouldn't be on the list if it were compiled this week?
A: I think EMC would be at risk. I believe its stock is plunging.
Q: Was General Electric on the list? Why or why not?
A: General Electric fell in rank on the list this year. Last year, it came in at 43 and this year at 79. One reason was a relatively low score on total return to shareholders over the past year. Another was middling sales growth over the past three years.
Q: No. 1 in the BW 50 was Tyco International, and here's a question about it that could affect its future on such lists. Why do you think that Tyco has lost one-third of its value in the last two months?
A: There's uncertainty about the planned $9 billion acquisition of CIT. Any time somebody does that big a deal, there will be questions and uneasiness.
Q: You say that Providian (No. 6) rose so high by keeping their customers from running up unmanageable credit-card balances. How did they do that?
A: Providian keeps close tracks on its lines of credit. It will yank a line if it sees unusual activity.
Q: Were more companies on the list global or only with a U.S. presence, and which performed the best?
A: Nearly all of the companies have global operations -- even a company like Comcast, in cable TV. Bed Bath & Beyond, the retailer, is the key exception. It's hard to be big in business today without being global.
Q: What biotech companies, if any, are on the list, and especially any genome companies. Are they still too small to qualify?
A: No genome or biotech companies made the list this year. But there are some big pharma companies, such as Merck, and little pharma companies, such as Forest Labs.
Q: Did more companies make the list due to good performance or through merger/acquisition. I'm thinking of AOL Time Warner and related deals.
A: More due to performance, although mergers help. Morgan Stanley Dean Witter is an example, because it really got big by its merger. As you suggest, AOL Time Warner is another good example. But those are exceptions, not the rule. You can't get a good ROE -- that's return on equity -- via a merger.
Q: You say in the article that the companies on the list are able to anticipate the needs of the market. What will be the market's next need?
A: I think that the stock market always wants one thing above all else: growing cash flow. It's up to the companies in the 500 to figure out where in the real economy of consumers and businesses, of goods and services, they can garner the future cash flows with the least capital investment. That's a truism, of course, but it's also a first question to ask when sizing up investments: Is this company in a position to see its cash flow surge over the next one, two, or three years? |
Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
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