Readers weigh in: Which companies will rule in five years?
We put the glam photo of columnist Jon Markman in temporary storage this week while he’s on vacation. In his place, the real authors of the column will be readers who answered a question he posed before heading south: “Which companies will be the largest in the world in five years?” (see “World’s Biggest Companies: Which Rock?“).
You can go straight to the SuperModels community to see all the replies directly. But what follows here — and in next Wednesday’s column — are excerpts of what I found to be some of the most interesting replies.
Trends — perpetual motion
Gitanshu Buch, a professional trader of oil and gas options and futures in New York whom Jon has quoted in past columns, (see his Member page) sees two trends dominating the next few years:
- The rise of financial companies to their historical place of dominance
- The decline of long-distance and other regulated communications companies as their industry falls out of favor
Gitanshu says he sees good things ahead for financial-services firms Goldman Sachs (GS, news, msgs) and Citigroup (C, news, msgs), as well as Internet conglomerates America Online (AOL, news, msgs) and Yahoo! (YHOO, news, msgs). But his analysis of the prospects for General Electric (GE, news, msgs) and Wal-Mart Stores (WMT, news, msgs) were particularly thought-provoking.
“I think GE loses its perch from today’s listing — both as No.1 and as Top 5,” he wrote. Referring to next year’s scheduled departure of legendary chairman and chief executive John F. Welch, Gitanshu commented: “A CEO change, especially a big-shoes-to-fill CEO change, takes years to digest, and there are bound to be a couple of hiccups along the way. We’ve already seen the effect of well-respected CEO change on stock price with Coca-Cola (KO, news, msgs) and AT & T (T, news, msgs) in recent history. There is no reason why this trend won’t continue.”
Taking GE’s place in the Top 5 stocks by market capitalization, he wrote, should be Wal-Mart. “A Wal-Mart, with $240 billion in revenues and a $270 billion market cap, with a core business growing in the low teens and no management changes on the horizon and the whole world still an unexplored market, is a better choice for a Top 5 listing than, say, a GE, with $520 billion market cap and $130 billion revenue,” Gitanshu wrote. He says he believes GE just doesn’t have the growth potential, given its already dominant products operating in mostly mature markets.
Gitanshu foresees AT&T, Lucent (LU, news, msgs) and Intel (INTC, news, msgs) also losing ground in the rankings. AT&T, for example, “has a hostile regulatory environment, a hostile marketplace, and a management team seen as fumbling the ball. More importantly, it has a whole world of investors long and looking to bail, keeping a solid lid on upside momentum for years to come.”
For the record, Gitanshu says he owns long positions in Wal-Mart, Citigroup and Intel.
Reader “MrHoover” (see recommendations) has an upbeat view of health-care stocks over the next few decades. “For at least the next 40 years a large, aging group of people in the United States will redefine aging, and their access to high-quality medical care will be an enormous priority. I don’t think I’m the only Boomer who has always secretly felt I’d worm out of this death thing.” MrHoover sees Johnson & Johnson (JNJ, news, msgs) as one of the companies to shine as part of that trend.
One for Bill Gates to ponder
Yclept (see Member page) basically surrendered on the question, declaring it “just too hard.” But before giving up, Yclept had a flight of fancy that we just couldn’t resist passing on. He painted a “next big scenario” that would pair up two of Microsoft chairman Bill Gates’ most vocal critics. (Microsoft publishes MSN MoneyCentral.)
In Yclept’s fertile imagination, Sun Microsystems (SUNW, news, msgs) chairman Scott McNealy and Oracle (ORCL, news, msgs) chairman Larry Ellison merge their two firms, creating the fourth-largest company in the world right off the bat, with a combined $408 billion market cap (using Monday, Aug. 14 prices). In order for the deal to make any sense, he says, they would then need to buy a large wireless telecommunications company, and then perhaps firms in remote robotics and biotech. But Yclept sees bumpy times ahead for this imaginary behemoth. “Pretty soon, it’s a great big inefficient mess, probably with a lot of debt. Small entrepreneurial companies are continually hammering in pitons, attaching ropes and climbing its side to slice steaks and roasts out of its flank.”
And Yclept didn’t even mention the problem of whether McNealy or Ellison would be the boss at the combined firm.
BustedFlush contributed a flurry of posts on the topic — and even added an alternative way of looking at company size, adding parameters for revenue and income as well as current market capitalization. The result was this screen. When Busted tried out the screen, Cisco, currently No. 2 on a list sorted only by market cap, ranked only 44. In another exercise, Busted applied companies’ projected earnings growth rate to their current market cap to mechanically project the top 50 companies in 2005. In this variant, Cisco becomes No. 1 with a market cap of $1.8 trillion in five years.
Busted said he doubted the predictiveness of the concept, however, declaring, “We won’t see a trillion-dollar market cap stock in the next five years. I think the difficulty of maintaining growth rates for the very largest companies is being vastly discounted. Only Microsoft has been forthright in pointing out the difficulty. And if growth rates do slow down, valuations will follow, as prices inevitably follow earnings.
“What I believe will happen,” Busted adds, “is that the range of capitalization among the top 50 is going to narrow considerably. Instead of there being an almost 7-to-1 ratio between No. 1 and No. 50, the ratio will narrow to perhaps 3-to-1. Since I don’t think the top tier is going to drop very much over the next five years, that implies that the other 40 or so companies are going to grow faster, which logically would make them the better investments.”
BustedFlush says he is long Cisco.
Still, time to join in
We’re going to check in the closets to see if we can’t come up with a MoneyCentral T-shirt to send any of the SuperModels community members whose comments are quoted in this column — assuming they’ve told us enough about themselves either on their Member pages or in e-mail for us to make contact. If you want to join the fray, there’s still time. Next week’s SuperModels column will rely on more of your posts on this topic.
Jon also pointed to another, long-running SuperModel message board thread on his way out the door, encouraging community members to draw parallels between their lines of work and investing. I’ll add a handful of those posts to this and next week’s columns as well:
- From a chemical salesman who made $3,000 with almost no effort one week, only to make nothing after pounding the pavement until he had blisters the next: “It seems that you never make what you are worth — either way too much or way too little…What doesn’t kill us makes us stronger.”
- From a flight instructor: “Investing is much like learning to fly: Lessons are expensive…Progress is not linear…Boldness is required along with caution, for the best lessons often come from mistakes…The rewards far outweigh the pain; You never stop learning; When things are really going wrong, ignore all else and concentrate on the basics.”
- From a hardware engineer: “Let’s just try something and if it doesn’t work, we’ll try something else.”
- From a therapist: “Measure twice, cut once. Research and listen more than you buy or talk…When in doubt do nothing.”
- From a retired marine: “Hurry up and wait; No pain, no gain.”
- From a systems engineer: “When you tried everything that was supposed to work and it still doesn’t work, try restarting the machine.”
- From a plumber: “(Bleep) flows downhill.”
At the time of publication, Dan Fisher owned or controlled shares in the following stocks mentioned in this column: America Online, AT&T, Citigroup,Coca-Colaa, General Electric, Intel, Lucent, Microsoft, Oracle, Sun Microsystems, Wal-Mart, Yahoo.
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