Technology dominates our daily lives, rules the current stock market and commands — for now, at least — the esteem of America’s professional investors.
Four of the five most respected publicly traded companies in the United States are West Coast technology disrupters, with Berkshire Hathaway — a predominantly old-economy conglomerate — the lone non-technology firm among the leaders, according to the annual Barron’s ranking of 100 U.S.-based companies. It is based on a survey of money managers.
No. 1 is Alphabet, the parent company of Google, the search engine behemoth that dominates global advertising. Serial inventor Apple is No. 2, followed by online retail giant Amazon.com (its chief executive, Jeffrey P. Bezos, owns The Washington Post) at No. 3.
Warren Buffett’s Berkshire Hathaway is No. 4. No. 5 is Microsoft, the tech granddaddy whose stock has soared under the leadership of chief executive Satya Nadella after sputtering for more than a decade.
Why the love for technology? Pretty simple, said David Kass, a finance professor at the University of Maryland.
“That is where there is growth,” he said, “in the economy, in earnings per share, in revenue.”
Look at the share prices: Alphabet is up 36 percent in the past 12 months and 27 percent in 2017 — with its share price surging above $1,000 on Monday. The Standard & Poor’s 500-stock index, which reflects the performance of the 500 largest U.S. public companies, is up 17 percent over the past 12 months and 7 percent this year.
Apple is up 57 percent over the past year and 33 percent year to date.
Amazon — whose stock passed $1,000 a share Friday — is swimming in the same pools. Its share price has increased 39 percent in the past 12 months and 35 percent this year.
“The economy, by contrast, is only growing at 2 percent,” Kass said, “but these companies are outpacing virtually all other industries in revenue and profit growth, and share price is following along.”
The Barron’s survey is not scientific and has no bearing on the companies. The weekly financial magazine said it polled money managers over six weeks to gauge their attitudes on the 100 largest publicly held companies in the S&P 500 index. The participants were asked to select one statement reflecting their opinion: highly respect, respect, respect somewhat and don’t respect.
In addition to technology, the money managers like shopping (Costco Wholesale, No. 6), home repairs (Home Depot, No. 8; Lowe’s, No. 14) and entertainment (Walt Disney, No. 10; Netflix, No. 15).
Dropping from the top spot to No. 7 was health-care giant Johnson & Johnson, which often graces “best of” lists when it comes to management. Johnson & Johnson is one of only two Triple-A-rated companies in the United States. The other blue chip blessed with the Triple-A rating — which primarily measures the quality of a firm’s bonds — is Microsoft.
Oil giant ExxonMobil, which dropped to No. 41 from No. 29, lost its membership in the AAA club a year ago when Standard & Poor’s downgraded its rating in the wake of tumbling oil prices.
This is the first year that Barron’s has included only U.S. companies on its list. “While the survey doesn’t address stock-price performance, many highly respected companies trade at a lofty premium,” Barron’s said.
And some don’t. General Electric, the 125-year-old conglomerate, dropped to No. 68 from No. 39 as it has seen its stock price languish. Coca-Cola dropped to No. 66 from No. 34 as the Atlanta beverage giant continues to diversify beyond its carbonation-based core business. Meanwhile, rival PepsiCo rose to No. 23 from No. 28 last year, mostly on the back of its robust Frito-Lay profits.
Some familiar names may have been hurt by scandal.
General Motors, which has weathered a costly ignition-switch scandal, ranked 88th of 100. The flaw killed at least 124 people and injured an additional 275 in small cars such as the Chevrolet Cobalt and Saturn Ion, made by the old, pre-bankruptcy GM.
One spot below it, at No. 89, is 21st Century Fox, parent of Fox News. The company has incurred tens of millions in costs related to potential litigation and settlements after sexual harassment allegations against top-rated news personality Bill O’Reilly, who was ousted in April, and the late Roger Ailes, the disgraced chairman of Fox News who left last summer.
The biggest loser this year is Wells Fargo, the San Francisco financial giant that held the No. 7 spot as recently as 2015 but this year turned up at No. 100.
Buffett, whose Berkshire Hathaway owns $25 billion of Wells Fargo shares, at his annual meeting last month rebuked the bank’s handling of widespread illegal sales practices that spanned at least 15 years and included targeting undocumented immigrants to open new bank accounts. Buffettsaid the bank’s executives failed to act immediately after finding out that employees were creating fake and fraudulent bank accounts to meet the company’s unrealistic sales goals. Wells Fargo “incentivized the wrong type of behavior,” the 86-year-old billionaire said.
Wells Fargo spokeswoman Jennifer Dunn said “our top priority is to rebuild trust in our company, and we have taken decisive actions to fix the problems, make things right for customers, and build a better Wells Fargo. Our actions include eliminating product sales goals for retail bank team members, emphasizing customer experience, and strengthening ethics and risk management throughout the company.”
Wells Fargo’s score was so low that the company ranked below tobacco giants Altria Group (No. 98) and Philip Morris International (No. 99), which keep pounding out profits even as states and municipalities pile on tobacco taxes.
The image of tobacco companies making products that are dangerous to people’s health may have created opportunities for investors willing to trade in the shares.
“In the recent years, tobacco stocks have actually outperformed the S&P 500 because many investors avoid them,” Kass said. “Some mutual funds perhaps are prohibited from investing in them. It creates a reduction in demand and lower share price. That in turn is an opportunity for investors to actually do reasonably well.”