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The Best Performers


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Haven't heard of Paccar Inc. (PCAR)? You've surely seen the company in action -- its Peterbilt and Kenworth trucks are some of the most popular brands on America's highways. And thanks to a growing need to replace aging fleets and increased willingness by business to spend, the truckmaker's profits are barreling ahead as well: Net income last year surged 72%, to $906.8 million. Shareholders couldn't be happier: PACCAR delivered 41% returns for the year ended Feb. 28, and 159% over the past three years.

While there's no doubt the economic cycle has finally swung the way of the Rust Belt, there's a lot more to PACCAR's stellar results than just good timing. The Bellevue (Wash.) company has produced profits in each of the past 65 years, despite the highly cyclical nature of the trucking industry. Management is constantly on the lookout to control the company's costs, through modest hiring in good times and selective capital investment at all times. A reputation for quality allows PACCAR to demand premium prices for its brand-name vehicles. That, as much as any economic upswing, explains why the company landed a spot on the 2005 BusinessWeek 50, our ninth annual ranking of the best-performing companies in the Standard & Poor's 500-stock index.

This year's version of the BusinessWeek 50 has an unprecedented touch of gray. Joining PACCAR on a strikingly varied list are a slew of the most efficiently run players from heavy industry, such as minimill steelmaker Nucor Corp. (NUE) -- this year's No. 1 company -- and farm- and construction- equipment manufacturer Caterpillar Inc. (CAT) Surging commodity prices helped big oil companies win six of our top 10 spots, in fact. But this year's list isn't all diesels and smokestacks. Technology companies show up in numbers unseen since the boom days. Stalwarts Cisco Systems (CSCO) and Microsoft (MSFT) return after a yearlong hiatus to make their fifth and sixth appearances on the list, respectively. Internet stars eBay (EBAY) and Yahoo! (YHOO) are repeat performers. Add in some powerful consumer brands, from luxury (Coach (COH)) to lattes (Starbucks (SBUX)); consumer-service powerhouses such as FedEx (FDX) and Progressive (PGR); and two of the most successful conglomerators of health care, United-Health Group and Wellpoint.

In fact, the 2005 roster of BusinessWeek 50 companies is the most diverse in the ranking's history. As heavily represented as energy companies are, they still show up in only 13 of the 50 slots. The strong growth across several sectors is no accident: "It's a mirror of ...the U.S. economy right now, in the sense that what we're seeing is broad, moderate growth," says Steven Wieting, senior U.S. economist at Salomon Smith Barney (C).

Not So Frothy

That's in sharp contrast to the roaring '90s, when tech companies posted gains that far outdistanced most other industries. Without one high-flying sector to spur major economic innovation, there's less of the dynamism, energy, and froth in the economy and the markets than in the boom years. But most economists are willing to make that trade-off, since it reduces the chance of a bubble -- and its concomitant bursting. "When you have a balance to things, it gives you a better chance to sustain the strong environment," says Prudential Securities (PD) Chief Economist Richard D. Rippe.

That sustainability may even pertain to commodity-driven companies, such as back-from-the-dead U.S. Steel, copper miner Phelps Dodge, and oil refiners such as Sunoco (SUN), all of which made our list. Demand from the developing world -- most notably China and India -- isn't likely to slack off soon. And since it takes a while for commodity supplies to ramp up, years will pass before supply catches up with demand and prices ease, argues Rajeev Dhawan, director of the Economic Forecasting Center at the Robinson College of Business at Georgia State University. "You can have this dominance of commodity-based companies continuing for a few more years," Dhawan says.

Last year, for the first time in years, the BusinessWeek 50 basket of stocks outpaced the S&P 500. Shares of the companies on the 2004 list, considered as a whole, advanced 10.6% over the 12-month period ended Mar. 14, compared with a slight 2.9% increase for the S&P and a -1.5% dip for the NASDAQ Composite Index. The BusinessWeek 50 is at heart a growth-stock list. Naturally in a rising economic environment, that bias toward profit and sales increases tends to outperform the broader market indexes.

Our proprietary formula yields a varied group of companies with wildly different risk profiles. Take a look at Robert Barker's column, where he dishes out tips for all types of investors, from the strong of stomach to the faint of heart. You can find even more investing advice at BusinessWeek Online.

With such a varied list of winners, there is bound to be a wide range of strategies for staying on top of the heap. In the pages that follow, we've chosen five for a closer look: ExxonMobil (XOM), which has steadily grown to be the biggest of Big Oil by dint of unwavering discipline; graybeard Autodesk, an unlikely tech highflier in software; Yahoo (JNJ), which is spreading its wings overseas; Nucor, which is making old-line steel a hot investment again; and Dow Chemical (DOW), a company that's making the most of its second chance at finding a new leader. What they all have in common is an ability to deliver results. Following that are snapshots of each BusinessWeek 50 company. And we complete our package with information-packed tables, laying out performance rankings for each of the companies in the S&P 500, arranged first by industry group, and second alphabetically. Dig in.

By Brian Hindo in New York


American Apparel's Future
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