Is Gap Really the Best Company of 2012?

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Yahoo released for the first time its “Company of the Year.” And through a series of screeners that include performance, dividends, balance sheet strength, and growth, Gap (NYSE: GPS) was chosen as the company of the year. However, after a screener of my own that takes into account those metrics used by Yahoo, I found two other companies with similar traits: Marathon (NYSE: MPC) and Seagate Technology (NASDAQ: STX), that might be better.

Performance

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Stock One-Year Performance</p> </td> <td> <p>Industry One-Year Performance</p> </td> </tr> <tr> <td> <p>Gap</p> </td> <td> <p>71%</p> </td> <td> <p>20%</p> </td> </tr> <tr> <td> <p>Seagate</p> </td> <td> <p>97%</p> </td> <td> <p>(12%)</p> </td> </tr> <tr> <td> <p>Marathon</p> </td> <td> <p>94%</p> </td> <td> <p>(5%)</p> </td> </tr> </tbody> </table>

First, let’s talk about what’s most important: performance. Gap has returned a gain of approximately 71%, which significantly outperforms its industry. However, both Seagate and Marathon have performed even better, and have done so in underperforming industries. In my opinion, a heavy weight should be given to a stock that trades to this level while its industry trades with a loss. Therefore, besides returning better gains compared to Gap, the performance is even more important because of the industry’s loss.

Dividend & Returning Capital

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Yield</p> </td> <td> <p>Dividend Rise</p> </td> </tr> <tr> <td> <p>Gap</p> </td> <td> <p>1.59%</p> </td> <td> <p>11.1%         </p> </td> </tr> <tr> <td> <p>Seagate</p> </td> <td> <p>4.99%</p> </td> <td> <p>52%</p> </td> </tr> <tr> <td> <p>Marathon</p> </td> <td> <p>2.25%</p> </td> <td> <p>40%</p> </td> </tr> </tbody> </table>

Aside from the fact that both Seagate and Marathon pay a better dividend than Gap, they also have increased their dividend to a larger degree compared to Gap. Gap did, however, recently announce a $1 billion stock buyback program, but then again, both Marathon and Seagate continuously buy back shares (including Seagate returning up to 50% of its free cash flow in the form of dividends and buybacks). Therefore, once again, I give Gap a third place in regards to being shareholder friendly.

Growth & a Comeback

What Gap has been able to accomplish is truly remarkable. It has gone from almost an irrelevant company to a company with year-over-year growth for only the second time in the last six years. The company has achieved revenue growth of 7% an incredible bottom line growth of 33.5%. This marks a great comeback, which is important in qualifying as the best of the best.

Marathon has lost more than $3 billion in revenue over the last 12 months, compared to 2011. However, it has managed to see high single digit bottom line growth, which indicates a major boost in margins. Seagate’s growth has been remarkable, growing its revenue by 30% and its earnings by about the same margin. The company continues to produce strong margins and industry-leading cash flow. Therefore, with that being said, Seagate has fundamentally grown much more than the other two on this list.

Conclusion

Gap has seen a great comeback over the last year and is no doubt a great selection as one of the better companies in 2012. However, there might be better selections, and I think Marathon and Seagate are two of the better investments. The good news is that despite solid growth and returns, none trade with overvalued price tags. Therefore, I am not certain that you could go wrong with any of the three choices as an investment. 


BrianNichols is long STX. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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