If you're looking for companies of size and sustainability that also offer prospects for growth investment, we suggest these 400 familiar and not-so-familiar names.
This is the sixth Forbes Global roster of the world's most attractive big public companies for investors. There must be something to our methodology because, since we've been tracking subsequent performance the last few years, the A-List has been beating some relevant indexes.
For example, since our last version in April 2003 (we shifted the schedule this year), the A-List is up 45 percent vs. 38 percent for the benchmark MSCI World Index (in dollars). The S&P 500 for big U.S. stocks was up only 24 percent. The A-List's performance is based on a simple, unweighted 400-stock portfolio. (Mitchell Martin, who does the compilation, points out that if you'd invested only in the seven companies we profiled in last year's issue of this magazine, your return would've been better still — nearly 56 percent.)
So we'll boldly suggest that these 400 listees — representing fewer than 1 percent of the world's publicly listed companies — are prime candidates for a growth-oriented equities portfolio. They include many familiar names and just as many that aren't on the lips of many stock touters or even much in the business news. Likewise, you won't find a good number of the most familiar and respected names from the top of The Forbes 2000 quantitative ranking of public companies, published this April. It's not that we don't regard them well in many instances, it's just that they don't score highly in our combined measure of past performance and likely future prospects.
We rate in five categories, each having equal weight. Three are five-year measures: sales growth, earnings growth and return on capital. Ideally, all three should be expanding. The other two categories are predictive: analysts' expectations for per-share earnings growth in the current financial year and the 52-week stock-price movements prior to our mid-August cutoff — the "market" presumably sensing future gains. Although this is a growth portfolio, income is still relevant, particularly in a sideways equity market like much of the world has seen in recent months. So we list dividend yields.
Getting down to 400 entails some tough cuts. In the last stages we had to zap great names whose scores fell just short this time: ABB, Aeon, Alcoa, Cemex, Citic Pacific, Costco, General Mills, Hanson, Hindustan Lever, Qualcomm, UPM-Kymmene, VNU, Vodafone and Wal-Mart. Some of those had been on the list each of our first five years. To show how competitive this selection is, 26 of the 57 "fabulous five-timers" from last year, including that very stodgy growth stock Microsoft, dropped off for various reasons.
We do occasionally override our metrics with editorial discretion — for instance, if scandal, a financial lapse or even a dramatic turn in a sectoral cycle causes us to second-guess a positive score. Or in some cases, such as with Japanese banks, we simply remain dubious. Also we may find a young company's rapid rise in valuation to be suspect — although we were an early and sustained believer in Yahoo. An A-List find: Hanwha (once Korea Explosives), now a budding services conglomerate. Its valuation nearly quintupled from last year. Inevitably, shifts in the world economy affect the placements. It's been a good year to be selling things like steel and other commodities in demand in China. So the A-List is not impervious to the prevailing winds. That's only fitting: An investor doesn't need a timeless Hall of Fame.
A final caution: Don't get confused by the categories, which are an artifact of the classifications used by our data services. Software companies are assigned to business services, for example, even though most employers would not want Electronic Arts' videogames deployed on their hardware. Likewise, health services includes a number of medical products manufacturers that might better belong on the capital or consumer goods tables. Consult our index to be sure not to miss an A-Lister.