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Monday, September 11, 2006

Barron’s “Most Respected” List, But Not For Investors


Barron’s put out it list of the 100 Most Respected Companies based on the views of 85 institutional investors. Factors like strong management, sound business strategy, consistent sales and profit growth, ethics, and competitive edge were critical in the voting process. Those surveyed were asked to rank companies as “highly respected”, “respected”, “somewhat repected”, or “not repected”.

Johnson & Johnson, which ranked first, trades where it did in early 2002, at about $63.50. Over five years, it has done slightly worse than the S&P. GE was second. It trades below where it did five years ago. While it is down almost 20% over that period, the S&P is up almost 20%. In third place, there is finally a company, Procter & Gamble, which has done well in the market. Its stock has gone from $35 five years ago to $61.14.

The issue of “most respected” is clearly no tied to investment returns, but it is hard to say why institutions, which have as their sole function to get good returns, would vote this way.

What is interesting is that companies that made big moves up in the rankings usually did do well in the market. United Technologies went from No. 25 last year to No.11. Over five years, it has gone from about $30 to $63.34.

Schlumberger moved from No. 30 to No. 16. Its stock has gone from $20 to $58 in five years. Likewise with Boeing which moved from No.40 to No. 19. Its stock has gone from below $40 five years ago to $73. Hewlett-Packard made a huge move from No. 78 to No. 25. Its stock has a five year increase form $16 to $36, most of it in the last two years.

The same pattern would seem to hold true for stocks that dropped in the rankings. Microsoft dropped from No.3 to No.22. It stock was close to $30 five years ago to $25.60. While its stock has dropped about 10%, the S&P is up almost 20% over that period. Intel also took a tumble from No. 8 to No. 28. It stock was $25 five years ago and now sits at under $20.

While being “Most Admired” seems to be a poor proxy for market returned in and of itself, moving up or down sharply in the rankings is a very good guide to investor sentiment. Maybe the survey methodology should be changed so the highest ranking companies are not ones with mediocre or poor shareholder returns.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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