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Wednesday, September 13, 2006

The Ten Best Managed Companies In America (SBUX)(HPQ)

From 24/7 Wall St.

We set out to pick the ten best managed companies in America for the year that began June 2005 and ended June 2007. At this point virtually all companies have reported their
June financials and filed their 10-Qs.

We looked only at companies with market capitalizations of over $1 billion. Most of the companies on the list are much larger. We looked at several financial measurements: return on invested, return on asset, return on equity, gross margins, sales growth over one, three and five years and operating income growth over the same period. To be fair, we made the comparisons within industries so we would not be comparing airlines with banks.

The other important aspect to our evaluation, and the most difficult, is picking companies where management mattered. In an industry where all companies are doing very well, good management may not be the single most important key to financial and stock market performance. In difficult industries strong management may save a company. We looked for a combination of excellent long-term strategic decisions and tactical expertise in areas like marketing, operations, or manufacturing.

The companies are not presented in any particularly order. The first company on the list is not considered better managed than the company presented in the sixth or seventh place. We will cover two companies each day for the week so that by Friday the full list of ten will have been posted.

5. Starbucks (SBUX) Nothing goes straight up, but Starbucks stock is pretty damn close. The shares changed hands at $3.50 in April 1997. The stock sits at between $32 and $33 now. Despite worries that same-store sales might be slowing some, Starbucks is a growth machine. The company’s revenues in 1997 were $967 million. In 1995, that number hit $6.369 billion. The company’s return on equity has grown from 11.7% in 1997 to 21.8%.

According to Morningstar, Starbucks has had 14 consecutive years of 5% or better growth in same-store sales.

Starbucks has over 12,000 stores worldwide now, and openly talks about getting to 36,000. Don’t bet against them.

6. Hewlett-Packard (HPQ) Forget about the board spying on the board and the chairwoman stepping down. HP has regained its position as one of the premier technology companies in the world since Mark Hurd joined as CEO.

After operating income sputtered in 2001 to 2003, it has picked up sharply recently. For the trailing twelve months, on revenue of $88.9 billion operating profits have gone up to $4.3 billion. In the quarter ending July 31, operating earns rose to $1.51 billion from $913 million in the same quarter a year ago. The company’s restructuring plan will take about 15,000 employees out of the workforce. Most of the large HP units had substantial growth in the last quarter including the enterprise storage & server business, the personal systems group, and the printer and imaging operations.

The stock traded under $20 two years ago. It now changes hands at nearly $37. One of the great old names in US tech has come back.

Previous companies:

1. Altria seen here.

2. GM seen here.

3. Illumina seen here.

4. Exxon seen here.

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

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