The 10 Best American Companies: Part 1
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There are many American companies that have made a good impression on me as of recently, but there are a select few that separated themselves from the pack. This will be the first post of a short series explaining why I believe these ten companies are positioned for success.
Colgate-Palmolive (NYSE: CL) is most commonly known for its Colgate brand of oral hygiene products, but the company owns forty brands that reach consumers in over 200 countries. The company shows tremendous loyalty as over a quarter of its 40,000 employees have been employed there for over twenty years. More than loyalty, the company shows incredibly consistency as it has distributed annual dividends for 117 years, with dividend increases for the last 49 consecutive years.
Colgate currently shows a market cap of $53.5 billion and a Free Cash Flow (FCF) yield of 4.9%. In 2012, revenues topped $17 billion with a gross margin of over 58%. The company’s Earnings Per Share (EPS) are another reminder of their consistency, increasing eight of the past ten years. One of the decreases would hardly be considered that, as it fell from 4.37 to 4.31 from 2009-2010. While Colgate's industry may not be booming, the company is very consistent, as well as strong employee satisfaction.
Google's (NASDAQ: GOOG) mission is to organize the world's information and make it universally accessible and useful. According to LinkedIn data, Google is now the most desired employer in the world. Have you ever been at work and had an un-dying urge to work on something that actually interested you? Google's forward thinking "20% time" policy allows employees to work on projects of personal interest a fifth of the time. Google currently owns the most popular search engine (Google), email (Gmail), mobile operating system (Android), and video website (YouTube) in the world. Let's look at some figures to see how they stack up.
In the past decade, Google's revenues have increased over 3,400% as its gross margins have increased from 57.3% to 58.9%. The company boasts a market cap of $267.8 billion and a FCF yield of 5%. Warren Buffett has often talked about comparing a company's Return on Equity (ROE) with its Return on Invested Capital (ROIC). He wants those figures as close to each other as possible - Google's ROE has identically matched its ROIC for five of the past ten years, with the other five years all within 2% of each other. This, along with a decade of consecutive increases in EPS, should make Buffett-like investors happy.
As Daniel Ferry points out, Costco's (NASDAQ: COST) membership fees make up approximately 2% of its approximate $99.1 billion in revenue, but membership fees essentially make up all of the company's earnings. I'm starting to notice a trend among these companies of employee satisfaction as Costco pays its average employee 42% more than the average Wal-Mart Sam's Club warehouse employee. With one of the lowest employee turnover rates in the industry, research from the Slate has shown that cashiers will average $40,000/year after working for Costco for just five years.
Low cost items (leading to low margins), have proven successful for Costco as the company's revenues increased 233% since 2003. In that same period of time, the company has practically tripled the return of the S&P 500 growing over 250% as opposed to just over 84%. Yes, the company only shows gross margins of 12.4%, but its EPS have risen nine of the past ten years, from $1.53 to $3.89. Again, the company's ROE and ROIC are steady with each other, though not as steady as Google's.
Below is a chart comparing these three companies to the S&P 500's performance over the past five years.
The Foolish Bottom Line...
Colgate, Google, and Costco have all done tremendous jobs of growing their companies, treating employees well, and showing consistency to investors. They all offer great opportunities for customers and employees, but they also manage to make money and keep shareholders happy at the same time. In my opinion, these are all companies that should be considered "buys" by investors, and are surely three of the top companies in America.
Reminder: Check back for the next two posts with the remaining seven companies that I consider the top ten in America.
tlwofford has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale and Google. The Motley Fool owns shares of Costco Wholesale and Google. 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!