The Greatest Company in the History of the World

"It's the world's greatest company, period." 
 -- 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 and Microsoft. If you'd invested $1,000 in this company in 1950, your shares would now be worth about $2.6 million. And incredibly, this giant still has decades of slick profits ahead of it.

The greatest 
Meet the world's greatest company: ExxonMobil (NYSE: XOM  ) . 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 -- ChevronConocoPhillips (NYSE: COP  ) , Marathon Oil (NYSE: MRO  ) , 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 
John 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 long term.

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. Costco  (Nasdaq:  COST  ) , 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 $80 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, 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, Research In Motion (Nasdaq:  RIMM  ) . I know plenty of people  who are hooked on their CrackBerry. Still, we're talking about a business that needs to continuously adapt its products to stay relevant. 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:

  1. Kraft Foods (NYSE: KFT  )
  2. R.J. Reynolds Tobacco (now owned by Reynolds American)
  3. Standard Oil of New Jersey (ExxonMobil)
  4. Coca-Cola (NYSE: KO  )

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 above list.

Smokin' returns 
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:

  1. Look for owner-operator cultures and management teams motivated to focus on long-term results.
  2. Know that steady, lasting demand helps deliver expectation-beating results over time.
  3. Don't be afraid to snuggle up with sin stocks.

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.

Exxon is a great company -- but because we're hunting for tastier yields, it hasn't made the cut as one of our elite Buy First recommendations. To find out which six dividend giants made our final cut, you can click here to try our service free for 30 days.

Already a member of Income Investor? Log in at the top of this page.

This article was first published April 9, 2009. It has been updated.

Senior analyst Joe Magyer owns shares of Procter & Gamble. Procter & Gamble is a Motley Fool Income Investor recommendation, as is Coca-Cola. Costco, Microsoft, and Coca-Cola are Inside Value recommendations. Google is a Rule Breakers recommendation. Costco is also a Stock Advisor selection. Motley Fool Options has recommended a diagonal call on Microsoft. The Motley Fool owns shares of Procter & Gamble and Costco. After getting through all that, The Motley Fool's disclosure policy needs to go lie down for a bit.


Read/Post Comments (10) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 25, 2009, at 9:21 AM, FoolsSpecialK22 wrote:

    "As an investor, you'd rather laugh with the sinners than cry with the saints."

    This may come as a complete shock to you.

    Some things are even more important than money.

  • Report this Comment On November 25, 2009, at 9:22 AM, FoolsSpecialK22 wrote:

    "As an investor, you'd rather laugh with the sinners than cry with the saints."

    This may come as a complete shock to you...but

    Some things are even more important than money.

  • Report this Comment On November 25, 2009, at 11:08 AM, TMFJoeInvestor wrote:

    That isn't a shock to me, but we're in the business of giving investment advice here at the Fool, not life coaching or presenting ourselves as eminent moral authorities. We present the ideas, and the rest is up to you to run through your own personal filters.

  • Report this Comment On November 25, 2009, at 12:31 PM, FoolsSpecialK22 wrote:

    Got ya, but:

    "As an investor, you'd rather laugh with the sinners than cry with the saints."

    ...you are trying to tell me as an investor what I'd rather do.

    My Eminent Moral Authority tells me you're wrong. Just thought you may want to know not everyone thinks like you do. Have a happy...

  • Report this Comment On November 25, 2009, at 1:54 PM, KLSUWizard wrote:

    My Eminent Moral Authority? "You without sin cast the first stone"? If you dont use oil or the 15,000+ products produced from oil, you my take the high ground.

  • Report this Comment On November 27, 2009, at 3:10 PM, johnhenr wrote:

    FoolsSpecialK22, some things are more important than money? You're kidding, right? You don't really believe that nonsense, do you? This is an INVESTMENT SITE WHERE YOU LEARN HOW TO MAKE MONEY AND LOTS OF IT! Please take your utopian and do gooder blather somewhere else.

  • Report this Comment On December 11, 2009, at 10:35 AM, FoolsSpecialK22 wrote:

    Your comments are delusional.

  • Report this Comment On December 11, 2009, at 10:39 AM, FoolsSpecialK22 wrote:

    Your comments are delusional.

  • Report this Comment On December 11, 2009, at 10:40 AM, FoolsSpecialK22 wrote:

    So true had to post it times two.

  • Report this Comment On March 16, 2010, at 6:44 PM, Stoobz wrote:

    Sell all you own, purchase a robe, give the rest to charity and go live in the mountains of Tibet.

    Leave the rest of us to make money any way we legally can.

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