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Thursday, September 14, 2006

The Ten Best Managed Companies In America: Genentech, Goldman Sachs

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.

7. Genentech (DNA)The huge biotech company has not lost its luster. Its shares are off slightly from their multi-year high of over $98, but the stock trades at $78, up from about $17 in early 2003. Baird recently upgraded the company and RBC Capital affirmed its “outperform” rating. Revenue in the calendar year 2003 was $3.3 billion. That rose to $4.6 billion in 2004 and over $6.6 billion in 2005. The company’s operating profits grew at a similar rate. Revenue has also been up each of the last four quarters.

According to Morningstar, Genentech has grown an average of 28% per year the last eight years. Morningstar goes on to say: “With five product approvals since mid-2003, including two groundbreaking cancer therapies, the company has diversified its revenue stream and should enjoy strong sales and profit growth.”

The company has a return on equity over 20% and that number has been growing for the last four years.

As the role of large biotech companies becomes more and more central to big pharma and advances in healthcare, Genentech’s future will only get brighter.

8. Goldman Sachs (GS) Goldman Sachs has long ranked at the premier investment bank in surveys by magazines like EuroMoney, Institutional Investor, and Financial World. While investors are concerned about the short-term prospects of banking due to a choppy market and slowing economy, Goldman has been navigating issues like this for decades. With a great deal of success.

Goldman’s stock has gone from about $60 in late 2002 to its current level of $160. The company now runs large businesses in M&A, debt and equity underwriting, asset management, and trading. Trading for its own account does have risks, but it can also produce spectacular returns.

Earnings before taxes have grown for four consecutive years, and the trailing twelve month over $12 billion, about four times the 2002 number.

Earlier Ten Best Managed

1. Altria can be found here.

2 General Motors can be found here.

3. Illumina can be found here.

4. Exxon can be found here.

5. Starbucks can be found here.

6. Hewlett Packard cab be found here.

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

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