"It's the world's greatest company, period."
Â -- Arjun Murti, Goldman Sachs analyst
I'm what a lot of folks would call "obsessed" with finding great stocks. So when I heard Goldman Sachs oil oracle Arjun Murti boldly label a company as the world's greatest, you'd best believe I paid attention.
That's pretty high praise, but the facts speak for themselves. In
fact, my research led me to take Murti's claim one step further: This
is the greatest company in the history of the world.
The corporate titan in question produced modern-day history's
greatest fortune, and it earned double the combined 2008 profits of Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT).
If you'd invested $1,000 in this company in 1950, your shares would now
be worth about $2.5 million. And incredibly, this giant still has
decades of slick profits ahead of it.
Meet the world's greatest company: ExxonMobil.
Biggest, strongest, most efficient, most evil -- there's hardly a
superlative that hasn't been applied to this most successful of the
Standard Oil grandchildren. But while much is made of just how great or
how evil folks peg Exxon to be, there's strangely little discussion
over the core drivers of why its stock has been a huge success.
It would be easy to say that Exxon's success, and that of Standard Oil's lineage – Chevron (NYSE: CVX), ConocoPhillips,
etc. -- was just a function of being in the right place at the right
time. Hawking oil and gasoline at the dawn of the Industrial
Revolution, after all, is a Category 5 tailwind.
But there's much more to Exxon's success. Fortunately, we can also spot those discernible traits in other opportunities.
1. An owner-operator culture
Rockefeller didn't run an infamously efficient organization just for
kicks. As the largest shareholder, he had a vested interest in the
success of Standard Oil. When managers and employees are shareholders
alongside you, they share your desire to manage the business for the
Take a look at the cutthroat world of big-box retail, where smart
growth and a fanatical focus on controlling costs are crucial to
long-term success. Wal-Mart (NYSE: WMT),
for example, is as known as much for its insider ownership and
tenacious zeal for efficiency as anyone. And not coincidentally, it
ranks among the biggest winners in this space for investors over the
past 20 years.
By the way, there's still plenty of alignment between Exxon's
leadership and outside shareholders. The company consistently posts
better margins and returns on capital than its Big Oil brethren. CEO
and Chairman Rex Tillerson has plenty of incentive to keep it that way;
he owns 1.1 million Exxon shares -- close to $84 million worth.
2. Enduring demand
Demand for oil is
strikingly consistent. For most companies, steady demand equates to
steady cash generation. But for Exxon, the consistency of demand for oil is just as important as the duration
of that demand. Constant doubts about the staying power of oil have
helped keep Exxon's shares perpetually undervalued, allowing management
and dividend reinvestors to steadily gobble up shares at attractive
prices while the company continues to outpace expectations.
For another case study in the importance of demand, consider Procter & Gamble (NYSE: PG), which I've recommended to Income Investor
members. P&G's core products (razor blades, toilet paper,
disposable diapers, etc.) all face little chance of technological
obsolescence. Better yet, demand is regular and firmly entrenched.
Maybe I'm just a pretty boy, but I'd be living in my car before I
stopped buying razors.
Now consider a company whose fates hinge on innovation, Apple (Nasdaq: AAPL). I love my iPhone as much as the next yuppie, and Apple's results have had plenty of crunch.
Still, we're talking about a business that needs to almost continuously
reinvent itself and its products. Ponder that for a second, and now
take look at this. According to dividend guru Jeremy Siegel, these are among the highest-returning S&P 500 stocks from 1957 to 2003:
Cheese. Tobacco. Oil. Coke. I think you get the picture.
3. No one loves a sinner
Some folks feel
a bit queasy about investing in so-called sin stocks: tobacco
companies, brewers, Big Oil, etc. Just like the long-standing (and
false) belief that oil demand will dry up in the not-so-distant future,
many investors' aversion to investing in sin stocks just leaves the
stocks that much cheaper for the rest of us. Their loss. Our gain. As
an investor, you'd rather laugh with the sinners than cry with the
saints. Again, consider the primo status of oil and tobacco on the
And here you thought
Exxon's secret sauce was a blend of industrialization and cold-blooded
ruthlessness. OK, sure, maybe there's a pinch of both in there, but
plenty more was involved in the company's success. Take that knowledge
forth, Fool, and:
James Early is looking for similar opportunities over at our dividend-focused newsletter service, Income Investor.
Specifically, he's searching for undervalued stocks boasting
impressive, durable competitive advantages with a nice dividend to boot.
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