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Fortune 500: 1996 vs 2016

Was going to do more analysis on this but for now, I'll just write a short post.

I took a look at the top 20 Fortune 500 companies and compared them to what they were 20 years ago, in 1996. For those not familiar with Fortune 500, it is solely based on revenue. It ignores market cap, profits, and so forth. Because it uses sales (or revenue), the picture it presents is often quite different from, say, the S&P 500.


1996 2016 % change
Rank Company Revenue Rank Company Revenue
1 General Motors  $      168,829 1 Walmart  $        482,130 415%
2 Ford Motor  $      137,137 2 Exxon Mobil  $        246,204 124%
3 Exxon Mobil  $      110,009 3 Apple  $        233,715
4 Wal-Mart Stores  $        93,627 4 Berkshire Hathaway  $        210,821
5 AT&T  $        79,609 5 McKesson  $        181,241
6 Intl. Business Machines  $        71,940 6 UnitedHealth Group  $        157,107
7 General Electric  $        70,028 7 CVS Health  $        153,290
8 Mobil  $        66,724 8 General Motors  $        152,356 -10%
9 Chrysler  $        53,195 9 Ford Motor  $        149,558
10 Altria Group  $        53,139 10 AT&T  $        146,801 84%
11 Prudential Ins. Co. of America  $        41,330 11 General Electric  $        140,389 100%
12 State Farm Insurance Cos  $        40,810 12 AmerisourceBergen  $        135,962
13 DuPont  $        37,607 13 Verizon  $        131,620
14 Texaco  $        36,787 14 Chevron  $        131,118 309%
15 Sears Roebuck  $        35,181 15 Costco  $        116,199
16 Kmart Holding  $        34,654 16 Fannie Mae  $        110,359
17 Procter & Gamble  $        33,434 17 Kroger  $        109,830
18 ChevronTexaco  $        32,094 18 Amazon.com  $        107,006
19 Citicorp  $        31,690 19 Walgreens Boots Alliance  $        103,444
20 Hewlett-Packard  $        31,519 20 HP  $        103,355 228%
US GDP (1996)  $8,100,201 US GDP (2Q 2016)  $18,561,000 129%


As most value investors would know, sales is more stable (hence why some believe P/S (price to sales) is more predictive of investment performance than P/E or EV/EBITDA or whatever). The Fortune list reflects the stability.

At first glance, it might seem that the companies have changed quite a bit but a lot of that is misleading. Quite a lot of the changes are due to mergers and acquisitions and restructurings and it isn't evident in the list (some companies like Berkshire Hathaway weren't listed for various reasons). Very few companies' sales actually declined; rather, even when they appear to decline, it is because the company may have sold off a subsidiary, spun it off, and so forth. Looking at something like General Motors (GM) is illustrative of this.

Between 1996 and 2016, GM went bankrupt and shareholders lost everything. GM also shut down several prominent subsidiaries (Pontiac, Saturn, etc) and shed non-core assets and liabilities including golf clubs, "toxic" assets, pension liabilities and so forth. Yet, even after all this negative activity, GM's sales have only declined about 10% to $152 billion from $168 billion in 1996. (For reference, high-flying electric vehicle maker Tesla's sales is only about $4 billion right now--it'll probably take Tesla 30 to 40 years to reach GM's sales. Having said this, Tesla can likely generate higher profits and can be worth more even with less sales.) GM is a good example of a company with dominant, albeit low-margin, products but incompetent management and poor shareholder governance (at least for the last several decades).

As with many top ranking lists, if you are a contrarian like me, you have to be careful with companies that may be hitting the peak or is too popular. For instance, HP has increased its sales significantly (compared to 1996) but it has been struggling lately and it's not clear if it is entering a period of decline.

Since the Fortune list is based on sales, one should check against GDP, which kind of represents the "sales" for the whole economy, to get a feel for how these companies are doing. Admittedly, most of these companies are global and generate foreign sales but I think the US GDP is still a good proxy.

US GDP went up by around 129% in 20 years, which is less than the very-long-term average I would expect. In the long run, US economy has grown around 3% real and 3% nominal for a total nominal GDP growth rate of 6%. If you ignore foreign markets, US companies should growth their sales by around 6% per year (at a minimum they should grow by 3% to cover inflation--right now inflation is lower at around 2% but that's unusual in my opinion.)

Most of these companies appear to have grown faster than US GDP growth, which is good for their shareholders (this outperformance likely came from foreign sales).

Anyway, hope to revisit this in the future with more thoughts.


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