Hall of Fame Stocks

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The major league Baseball Hall of Fame just announced its 2013 voting results. For the first time in the past 17 years no one made the grade. To get in a player needs to garner 75% of the votes. Only 208 players, about 0.7% of the total number that have played, are enshrined in the Hall, located in Cooperstown, NY.

To be eligible for the vote a player is required to have had at least a 10 year playing career and retired five years ago or earlier. Typically, those who "significantly outperformed" their peers during the period when they played are given consideration by the voters, the Baseball Writers Association of America. Other factors include whether any negatives, such as taking performance enhancing drugs, exist.

I started thinking about which companies might be included in a Stock Hall of Fame. I developed a list of somewhat arbitrary (but important) criteria that can be used to nominate a company for voting: 

1. Has the company been around for a relatively long time? I suggest a minimum of 15 years since the company’s IPO. Therefore, a company must have been publically traded in Jan. 1998 or earlier to be considered this year.

2. Comparison of the stock to the overall market. In my book the stock must have significantly exceeded the S&P500 index on average over the last 15 years.

3. Did the company outperform its industry peers in key areas? The parameters I chose were (a) 5-year average EPS growth rate, (b) current long term debt/equity ratio (LT D/E), (c) 5-year average gross margin, and (d) current revenue per employee.

4. Do any intangibles exist? Examples include "negative” articles written in the media or executive misdeeds.

I chose to use the Motley Fool CAPS "all-star" players as the voters. To get into the Stock Hall of Fame a company needs 95% of the all-star players to state that the shares will outperform the market going forward.

I nominated the following stocks for the vote based upon the criteria above:

  1. Apple (NASDAQ: AAPL)
  2. International Business Machines (NYSE: IBM)
  3. Amazon.com (NASDAQ: AMZN)
  4. McDonald's (NYSE: MCD)
  5. The Coca-Cola Company (NYSE: KO)

 Here is the nominating scorecard:

<table> <tbody> <tr> <td><strong><span>Stock</span></strong></td> <td><strong><span>Total Price Performance<br />(15 Years)<br />(%)</span></strong></td> <td><strong><span>Total Market Performance<br />(15 Years)<br />(%)</span></strong></td> <td> <p><strong><span>EPS Growth<br />(5-year average)</span></strong></p> <p><strong><span>(%)</span></strong></p> </td> <td> <p><strong><span>Industry EPS Growth<br />(5-year average)</span></strong></p> <p><strong><span>(%)</span></strong></p> </td> <td> <p><strong><span>Gross Margin<br />(5-year average)</span></strong></p> <p><strong><span>(%)</span></strong></p> </td> <td> <p><strong><span>Industry Gross Margin<br />(5-year average)</span></strong></p> <p><strong><span>(%)</span></strong></p> </td> <td><strong><span>LT D/E</span></strong></td> <td><strong><span>Industry LT D/E</span></strong></td> <td><strong><span>Revenue/Employee</span></strong></td> <td><strong><span>Industry Revenue/Employee</span></strong></td> <td><strong><span>Negative Issues ?</span></strong></td> <td><strong><span>Number of Categories Exceeding Peers</span></strong></td> </tr> <tr> <td><span>AAPL</span></td> <td><span>11,300</span></td> <td rowspan="5"><span>56.3</span></td> <td><span>64</span></td> <td><span>36</span></td> <td><span>43</span></td> <td><span>27</span></td> <td><span>0</span></td> <td><span>0.09</span></td> <td><span>$2.1M</span></td> <td><span>$1.4M</span></td> <td><span>Yes</span></td> <td><span>5</span></td> </tr> <tr> <td><span>AMZN</span></td> <td><span>6,100</span></td> <td><span>-21</span></td> <td><span>13</span></td> <td><span>24</span></td> <td><span>10</span></td> <td><span>0</span></td> <td><span>0.28</span></td> <td><span>$1.0M</span></td> <td><span>$930,000 </span></td> <td><span>Yes</span></td> <td><span>4</span></td> </tr> <tr> <td><span>IBM</span></td> <td><span>356</span></td> <td><span>14</span></td> <td><span>23</span></td> <td><span>50</span></td> <td><span>37</span></td> <td><span>1.13</span></td> <td><span>0.62</span></td> <td><span>$214,000 </span></td> <td><span>$312,000 </span></td> <td><span>No</span></td> <td><span>3</span></td> </tr> <tr> <td><span>MCD</span></td> <td><span>429</span></td> <td><span>11.6</span></td> <td><span>7.1</span></td> <td><span>44.7</span></td> <td><span>36.7</span></td> <td><span>0.92</span></td> <td><span>0.95</span></td> <td><span>$65,000</span></td> <td><span>$55,300 </span></td> <td><span>Yes</span></td> <td><span>4</span></td> </tr> <tr> <td><span>KO</span></td> <td><span>105</span></td> <td><span>11.7</span></td> <td><span>14.8</span></td> <td><span>67.3</span></td> <td><span>57.2</span></td> <td><span>0.49</span></td> <td><span>0.62</span></td> <td><span>$326,000</span></td> <td><span>$367,000 </span></td> <td><span>No</span></td> <td><span>3</span></td> </tr> </tbody> </table>

The numerical results speak for themselves. All of the stocks outperformed the overall market over the last decade and a half. Apple and Amazon had outstanding numbers as compared to the S&P500. Two companies (Apple and McDonald's) had superior EPS growth rates. All of the companies had gross margins higher than their peers. Except for IBM all had debt levels below others in their industries. Three businesses reported higher revenue per employee than their peers.

In the intangible category Apple had several problems, including the iPhone4 antenna problem and the iOS6 Maps App issue that received a lot of negative publicity. Amazon last year, for the first time in history, reported a quarterly operating loss. McDonald's announced a decline in monthly same store sales last October.

On to the vote. The final tally was as follows:

1. Apple: 96.1%

2. IBM: 94.6%

3. Amazon: 98.7%

4. McDonalds: 96.9%

5. Coca-Cola: 97.0%

Four of my nominations made it into the Hall. IBM just missed out by 4 votes. I’ll look to nominate it again next year. Let me know what companies you think should be included.

 


Mathman6577 owns shares of Apple, International Business Machines., McDonald's, and The Coca-Cola Company. The Motley Fool recommends Amazon.com, Apple, McDonald's, and The Coca-Cola Company. The Motley Fool owns shares of Amazon.com, Apple, International Business Machines., and McDonald's. 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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