The 20 Greatest Companies I Know

The title says it all. In this article, I am listing the 20 greatest companies I know.

These are the companies whose business models I most admire. Business models that have proven themselves over time. Business models with strong moats that generate above-market returns without taking unnecessary risks. And perhaps most importantly for us, business models that are highly likely to be thriving 20 years from now.

After you view my top 20 list, stick around and I'll reveal:

  • The surprising quality that 12 of the 20 companies share.
  • The company on the list whose stock is the best value today.

In no particular order, here are the 20 (grouped where appropriate) along with why I love them.

The 20 Greatest Companies I Know

Why I love them

UPS (NYSE: UPS  ) A powerful shipping network that throws off impressive returns on capital. Poised to take advantage of increases in online commerce.

Altria (NYSE: MO  )

Philip Morris International (NYSE: PM  )

They split the world under the Marlboro brand. Threat of litigation has historically allowed reinvestment of their large dividends at cheap earnings multiples.
US Bancorp (NYSE: USB  ) A large bank that sets the standard for focus and quality lending.
Johnson & Johnson (NYSE: JNJ  ) The one-stop "health-care mutual fund," with strong brands in medical devices, pharmaceuticals, and consumer goods.

Coca-Cola (NYSE: KO  )

PepsiCo (NYSE: PEP  )

A virtual duopoly with brand power that can withstand threats from upstarts.
ExxonMobil The best-in-class integrated oil and natural gas play, famed for its skillful capital allocation.

Accenture

IBM

Together, they dominate the IT consulting space. Accenture as a platform-agnostic pure play and IBM as a hardware/software/consulting fun pack.
McDonald's A model of consistency in all respects.

Wal-Mart

Amazon.com

The dominant bricks-and-mortar retailer and the dominant online retailer.
Disney Under-recognized ESPN franchise along with all the other Disney brands. Tremendous cross-promotional prowess.
Community Bank System Like US Bancorp above, but much smaller. Excellent shareholder friendliness.

Chipotle

Buffalo Wild Wings

Two newer restaurant concepts with rock-solid balance sheets and impressively profitable growth.
Tempur-Pedic A premium brand in the sleepy mattress industry.

ADP

Paychex

A one-two payroll processing punch -- both feature strong balance sheets and the insurance company-like ability to invest cash held for clients.

I don't expect you to agree with every company I've selected. I myself still debate a few that just barely made the list and a few that just barely didn't. But the list as a whole is a varied collection of some absolutely amazing powerhouses. I believe each company is well worth your researching time.

The surprising quality 12 of the 20 share
I mentioned earlier that 12 of these 20 great companies share a surprising quality. That surprising quality is that I don't own stock in them.

Are the business models of the eight I own better than the 12 I don't own? Nope.

Altria, Philip Morris International, ExxonMobil, Accenture, McDonald's, Disney, Community Bank System, and Tempur-Pedic are great companies, but they're not any better than the other 12.

So why don't I own them all? It all comes down to price. It's not enough to do hours of painstaking research and identify dominant companies. To beat the market, you have to buy those dominant companies at favorable prices.

As a cherry-picked example, if you'd bought Coca-Cola shares on certain days in go-go 1998, you'd be down on the investment today, 13 years later. Even after dividends and despite Coke having tripled profits, more than doubled free cash flow, and almost doubled sales since then.

Buying a great company at a bad price is a not-so-secret formula for losing to the market. That's why I may never own all the stocks in my top 20.

And it's why I don't encourage you to run out and buy up shares of all these companies willy-nilly either. Be patient, do your research, and strike when the price is right.

Fortunately, today there is one company out of the 20 whose price looks quite attractive.

The best stock at today's prices
Unfortunately, to get a great company at a below-market price, something bad usually needs to happen. Macro events, negative same-store-sales growth, the rise of a pretender to the throne, an industry downturn, the threat of increased regulation, or, in the recent case of Johnson & Johnson, a parade of product recalls.

While the threat to J&J's brand power is certainly real, it's during these times of doubt that you can get great companies at good to great prices. With $10 billion more cash than debt, price multiples around 12, and a 3.5% dividend yield, Johnson & Johnson is a great company at a good price. Further share price weakness can push that good price to a great price.

As you mull over Johnson & Johnson, I invite you to download our free report detailing a few other high-quality companies. In the report, one of the 20 companies above (not J&J) is deemed the "dividend stock for the rest of your life." Click here to access it now.

Anand Chokkavelu owns shares of Altria, Philip Morris International, ExxonMobil, Accenture, McDonald's, Disney, Community Bank System, and Tempur-Pedic.  

Accenture, Johnson & Johnson, Coca-Cola, Paychex, and Wal-Mart are Motley Fool Inside Value selections. Chipotle is a Motley Fool Rule Breakers selection. Amazon.com and Disney are Motley Fool Stock Advisor picks. Philip Morris International and Wal-Mart are Motley Fool Global Gains recommendations. Buffalo Wild Wings and Chipotle are Motley Fool Hidden Gems picks. Automatic Data Processing, Johnson & Johnson, Coca-Cola, and PepsiCo are Motley Fool Income Investor picks. Motley Fool Options has recommended diagonal call positions on Johnson & Johnson, Pepsi, and Wal-Mart. The Fool owns shares of Altria, Chipotle, Coca-Cola, ExxonMobil, IBM, Johnson & Johnson, Paychex, Pepsi, Philip Morris International, UPS, and Wal-Mart. Motley Fool Alpha owns shares of Johnson & Johnson.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (41) | Recommend This Article (133)

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 March 01, 2011, at 5:05 PM, ozzfan1317 wrote:

    I own two of them I

  • Report this Comment On March 01, 2011, at 5:06 PM, ozzfan1317 wrote:

    got my shares of coke around 40 near the crash it will probably never see that price again.

    Sorry accidently hit send..lol

  • Report this Comment On March 01, 2011, at 5:18 PM, Jimbo1969 wrote:

    No Apple? No Google?

  • Report this Comment On March 01, 2011, at 5:28 PM, TMFBomb wrote:

    @Jimbo1969,

    I considered Apple and Google, but I had a harder time envisioning the competitive landscape for them in the next 20 years vs. the other companies on the list.

    Also, to pre-empt a question, I excluded Buffett's Berkshire Hathaway to make the thought exercise more fun and idea-generating. I own shares of Berkshire and love Mom, America, and cherry pie (apple pie is overrated). :)

    -Anand

  • Report this Comment On March 01, 2011, at 5:33 PM, robba67 wrote:

    Sorry, but J&J is no longer a "great company." It used to be one of the best run, most ethical companies in the world. When I was teaching college courses in Management and Marketing, I used J&J as THE example of good corporate behavior and positive corporate culture..

    No longer.

    It's lost its way.

    I sold my shares a couple of months ago.

    Otherwise good article, though.

  • Report this Comment On March 01, 2011, at 5:46 PM, bottomfishguy wrote:

    No GE or AMZN?

    I don't like banks, plus USNB was down 2% today

    I like UPS , just waiting for a nice pullback.

    In the meantime I like BGZ in this correction market that looks like a 10-15% pullback.

    The middle-east is a tinderbox and could spark a major correction, just what the money managers want. Just what big oil companies want. Anyone seen the documentary "Inside Job"? Don't miss it then call your congressman and senator.

  • Report this Comment On March 01, 2011, at 5:59 PM, JF125780 wrote:

    LVS is an excellent company to invest in.

    LVS is being investigated by the FCPA (foreign corrupt practice act).

    They were also upgraded by credit suisse who likes the Sands which has a strong footpint in Macau, and April of last year opened a casino in Singapore. The tax structure is only 17% in Singapore as opposed to 39% in Macau.

    The Sands is looking to open in Spain, Viet Nam, Japan, India and who knows where else in the future.

    This is my company of the future, but like Motley Fool says, "do your homework and when the panic selling stops, buy."

    Dan Kowkabany

  • Report this Comment On March 01, 2011, at 6:12 PM, TMFBomb wrote:

    @robba67,

    A valid opinion. Anything specific on J&J that especially worries you?

    @bottomfishguy,

    I do include Amazon in my 20. GE did not make my cut -- largely due to complexity.

    -Anand

  • Report this Comment On March 01, 2011, at 6:53 PM, uaku wrote:

    I own only GE hit send at $12.1 but did not have enough courage to buy more than 100 shares

  • Report this Comment On March 01, 2011, at 8:15 PM, TimothyVR wrote:

    There is no perfect time to buy dividend aristos like KO, JNJ, IBM, MCD, etc.

    I use dollar cost averaging and make no attempts to time the market. Perhaps if I had been investing at the peak of the secular bull in 1998-99 I would have been more aware of timing, but as it is I buy a few shares of each on a regular basis.

    And where is P&G? Buffalo Wings but no P&G?

    And no non-US stocks on the list?

  • Report this Comment On March 01, 2011, at 8:23 PM, goalie37 wrote:

    Very fun exercise.

  • Report this Comment On March 01, 2011, at 8:49 PM, ozzfan1317 wrote:

    JNJ has so many successful brands that even the recalls are a small blip imo this is the early 80"s is you want a blue chip in your portfolio JNJ is a great canidate.

  • Report this Comment On March 01, 2011, at 9:21 PM, hiddenflem wrote:

    You forgot Apple.

  • Report this Comment On March 01, 2011, at 9:23 PM, CKingOne wrote:

    @robba67

    Thanks for bringing "corporate behavior" to the table. Corporate responsibility should always be a consideration when investing because where we put our dollars is our most important vote. It isn't just about the highest return, it is about the best investment.

  • Report this Comment On March 01, 2011, at 9:33 PM, TMFBomb wrote:

    @TmothyVR,

    Dollar cost averaging is a good way to buy in to shares. I want to be clear that I'm not talking about market timing here (in which you adjust your stock allocations)...I'm talking about waiting for a good price when you're trying to buy into an individual stock.

    As for P&G, that was a cut due to diversity. I didn't want a list too dominated by consumer goods, so I had to make some tough choices. I see nothing wrong with having P&G in your top 20.

    Although there are no truly foreign stocks on the list, many have significant global exposure (Philip Morris International being the extreme example). This is a personal list of 20 and I am weighted heavily in U.S. stocks in my individual stock selections. I will buy ADR's, but I get most of my foreign exposure via ETF's and mutual funds.

    Also, since I'm looking for companies that are going to be around 20 years from now, the list skews large cap and it skews American.

    Fool on,

    Anand

  • Report this Comment On March 01, 2011, at 9:34 PM, TMFBomb wrote:

    @ hiddenflem,

    See my answer to Jimbo1969.

    -Anand

  • Report this Comment On March 01, 2011, at 9:57 PM, TimothyVR wrote:

    Thanks for taking the time to respond. I didn't expect that.

  • Report this Comment On March 01, 2011, at 9:57 PM, Fool wrote:

    Great article. Rec +1

  • Report this Comment On March 02, 2011, at 1:30 AM, robba67 wrote:

    Anand, CKingOne, thanks for the dialogue.

    J&J is off my list because it no longer thinks the details...like getting manufacturing right...are important. It fights the FDA, rather than just doing the right thing. Too many lawyers.

    The company's performance during the late 1970's Tylenol scare was exemplary, and that wasn't even their fault. Yet they fixed it. Now, a different culture.

    My little company's mission statement is pretty simple, "Take care of the customers. Do the right thing." Theirs used to be a similar edict.

    Apparently, no longer.

  • Report this Comment On March 02, 2011, at 3:01 AM, tomd728 wrote:

    Anand..............beware of sun-up and immediately !!!!!!!!!!

    When word gets out to the entire MF crew of your

    piece you will surely be hung for ommiting BRK-B.

    Thank you for a brief and well done post.

    Tom

  • Report this Comment On March 02, 2011, at 9:06 AM, TMFBomb wrote:

    @robba67,

    Thanks for following up. Good insight that I'll keep in mind.

    @CelticRiver,

    That made me laugh.

    In case anyone missed it, I gave my rationale for excluding Berkshire in a prior comment:

    "...I excluded Buffett's Berkshire Hathaway to make the thought exercise more fun and idea-generating. I own shares of Berkshire and love Mom, America, and cherry pie (apple pie is overrated). :)"

    That said, I'm watching my back at Fool HQ this morning!

    -Anand

  • Report this Comment On March 02, 2011, at 12:52 PM, jrj90620 wrote:

    Prefer FedEx over UPS.FedEx always treated me and my packages better than UPS.Both are prospering from online business.

  • Report this Comment On March 02, 2011, at 2:07 PM, TMFBomb wrote:

    @jrj90620,

    FedEx was a tough cut. If my list was 30 companies instead of 20, it would have definitely stayed.

    -Anand

  • Report this Comment On March 02, 2011, at 2:40 PM, mikecart1 wrote:

    These companies are good at best. JNJ is overrated. If you look at their 10 year return, it is only 22% total. That is about 2.2% a year + their dividend of about 3%. So basically with JNJ you are getting a nice CD of about 5% annually.

    JNJ you say? I say no way!

    :D

  • Report this Comment On March 02, 2011, at 5:32 PM, TMFBomb wrote:

    @mikecart1,

    1) Since my aim is to buy low and sell high, poor prior stock returns don't bother me so much (poor operational returns would, though). 2) That said, JNJ has actually beaten the market in the last 10 years.

    Fool on,

    Anand

  • Report this Comment On March 02, 2011, at 10:15 PM, longertime01 wrote:

    Anand,

    Great article! I love mo, pm, ko. All the others are very good, too. And I've been watching them, too. I can't agree with you more. This is amazing. Just don't understand what's going on with the pharmaceuticals. They just suck right now. JNJ was my interest at first. But nothing beats MO. KO is with 12.X multiple now. I think it's a good buy. I think Amazon is too expansive right now. MO MO MO, ..., MO!

  • Report this Comment On March 04, 2011, at 11:21 AM, atmrover wrote:

    Microsoft ? Nobody, the author nor anyone else here mentioned M$ ? I'll bank on M$ over Apple being around 20 years from now, any day and twice on Sunday !

  • Report this Comment On March 04, 2011, at 11:27 AM, SimpleEcon wrote:

    You leave the Health Care sector completely out of the discussion. Why? Not only have the highest earners in this industry crushed the market in the last year, but they are set up to continue in the future as health care reform forces out small and mid market companies. By creating profit margin restrictions, the largest companies (Unitedhealthgroup, Well Point, Aetna, etc.) are able to buy membership rights as well as entire innovative health services companies for pennies on the dollar right now because these smaller companies don't have the cash to compete and survive the reform. How can you see the current and past strength of these larger companies, even amidst the ridiculous reform, combined with the overwhelming necessity for their future existence and leave them completely out of your discussion? Chart the profits over the last few years as well as projected earnings and tell me I am wrong.

  • Report this Comment On March 04, 2011, at 12:16 PM, TMFBomb wrote:

    @atmrover,

    I left both Microsoft and Apple off the list because I have less confidence in me being able to predict where they'll be in 20 years (versus the others). I do own shares of MSFT, though.

    @SimpleEcon,

    Similar to my response to atmrover, but these companies are high on my watchlist because of the uncertainty leading to low valuations.

    -Anand

  • Report this Comment On March 04, 2011, at 12:16 PM, pmj98765 wrote:

    Buffalo Wild Wings ??? Most of there meals are over 1500 calories but then again this is America I guess people really love that place

    I made a list a while ago I know I had Apple, American Express, BMW, JNJ, Singapore Airlines (not sure if you can invest in this one), Google, Charles Schwab, Air Products, McDonalds, Diseney, Microsoft, FedEx, Hewlett Packard, Prax Air and Coca Cola there were others but can't find the list. Basically these are based on my personal experiences with products and or customer service not analyzing data.

  • Report this Comment On March 04, 2011, at 12:55 PM, JudithCC wrote:

    Good post Anand. And short reminders to me on why I own five of them and should continue to hang on to them. One that is NOT in my portfolio is MCD and seeing a list like this always stirs up deep regrets and brings up that old issue of timing. In 1989 my husband bought 100 shares of MCD and divided them between our two children as an introduction to the stock market and watching money grow. Thanks to a couple 2 for 1 splits, dividend reinvesting, and MCD divesting their Chipolte shares, they each have 260 MCD shares and 4 chiplote shares. If we had only done the same thing in our portfolios!

  • Report this Comment On March 04, 2011, at 2:18 PM, advantedges wrote:

    Maybe another exercise here could be to identify the company that Buffett will be buying for BRK!

    Among the lists I have seen, names such as CL, FDX, CB,TRV,GD,ADM and EXC pop up! My favorite, though, is ALL. Allstate is the largest auto and home insurer in the USA, and could supplement the GEICO brand that BRK already owns. If the anti-trust people would allow it, that would be an excellent buy.

    Otherwise, since he is looking for a Big Target, I would vote for CL or ADM. Watch, he will buy GD so that his NetJet fleet can have the GulfStream brand! You know he is having fun!

  • Report this Comment On March 04, 2011, at 2:39 PM, cgscouten wrote:

    Berkshire Hathaway is in the portfolio because I trust Warren Buffett and Charlie Munger. Other stocks are in the portfolio because I iunderstand how they make money and approve the way they treat stockholders. Were I to pick one stock to pay my bills for the coming 20 years it would be BPT - underlying asset is Prudhoe Bay oil - no offshore exposure - and current yield is above 8%.

  • Report this Comment On March 04, 2011, at 2:51 PM, MistaTechnology wrote:

    In your analysis of IBM, you neglected to mention that $160 has been a sort of "magic number" for the stock. Over the past two decades, it was only after passing $160 that IBM would have a stock split. So, I would look for this.

    I am surprised you left Riverbed (RVBD) out of your favorites. The stock has been soaring on revenue and profit growth based on an excellent value proposition.

    In the no-tech world, I continue to kick myself for not buying Panera Bread (PNRA) when it was under $40, a few years ago. It's another growth company with strong value propositions: Excellent breads and pastries, coffee much better than Starbucks and free WiFi. Silly me! Now the stock is so high, I'm afraid to buy.

    On the downside, comments about Amazon's exclusion are out of place, in my opinion. While e-book sales have passed those of paper books, the market is still waiting for a color e-paper reader. The technology exists. Meanwhile, Amazon still holds a significant paper inventory and for good reason: The monochrome e-reader is largely unsuitable for technical (any field) or academic books that include color diagrams. In addition, the screen's form-factor would have to be larger. Meanwhile, its brick & mortar competitors, also with their own e-books, are suffering. Investors have the irrational tendency to lump together companies in the same sector. Borders may end up closing most or all of its stores and become another Amazon.

    Apple is the new old IBM, playing catch-up. Its iPad2 is less than what the original iPad should have been. The iPhone still doesn't support 4G, to the extent that "4G" (or what is marketed as 4G) exists. Great that Verizon sells it now, but that version can't multitask voice and data. I see Apple in a slump until it can compete or lead technologically, not only in aesthetics. I wish Jobs good health, not as much for the good of Apple but for the good of technology. Competition keeps all of us on our toes.

  • Report this Comment On March 04, 2011, at 5:47 PM, 808Peaches wrote:

    Puhlease! Leaving Apple off the list? After Fortune just ranked them number 1 as Most Admired Company. You sound just like the fools who wrote off Apple in late 90s and those dweebs who said Blockbuster video was a better buy than Netflix in 2002. I still hear their comments: "Nobody wants to get movies thru mail. People want to go inside a store to rent Dvds." I hope you're not one of those who suggested to buy Enron.

    Well, if you've been a lifelong user of Apple computers and purchased 2,000 shares at $8 per in Roth IRA in 1999, you too would be loving Apple. How about 4,000 shares of Netflix at $2.50 per in 2002? Or LVS in 2009 at $1.65.

  • Report this Comment On March 05, 2011, at 12:30 AM, stemcellanalyst wrote:

    Here's the greatest company I know of. Cephalon is leading the charge in the new wave of "biological drugs". PII results just published in Nature showed that Cephalon's "off-the-shelf" stem cell drug Revascor reduced MACE (Major Adverse Cardiac Events: chest pain, heart attack, death, etc) by an unprecedented 84% with no reported side-effects. It has shown similar effects for diabetes. Even though they just beat earnings, raised EPS targets, have a solid balance sheet and cash flows, Cephalon has the highest short interest of any stock in the S&P 500. Go figure. http://bit.ly/i1pYmr

  • Report this Comment On March 05, 2011, at 1:57 AM, johnadams620 wrote:

    I like mo the best.I have great faith in almost any product that is addictive.This week I think short the dollar,long oil,silver,gold and prepare to long the #.

  • Report this Comment On March 07, 2011, at 5:52 AM, buprenorphine wrote:

    seems you only know us companies.

  • Report this Comment On March 07, 2011, at 2:27 PM, NewConstructs wrote:

    I think the author would change his mind about may of those stocks if he looked at the full financial picture.

    For example, USB has misleading accounting earnings, which means that its true, economic earnings (definition is at link below) are negative and declining while the company shows positive and rising accounting earnings.

    Gotta do you homework these days b/c companies are moving more and more critical information from the income statement into the Financial Footnotes and the Management Discussion and Analysis.

    To get to the real profits of a business, you have to go MUCH farther than the author suggests. His analysis is focused in the right direction, but he only scratches the surface. The link below provides details on hidden charges and income that you can't find by looking at the income statement, cash flow statement or balance sheet. You have to analyze the Footnotes.

    Proof is in our report (free) available at the link below.

    Most investors will be sur­prised to learn that we found over 13,000 one-time items buried in nor­mal line items in the MD&A and Foot­notes of 10-K fil­ings from 1998 thru 2/15/2011. And don’t think for a sec­ond that these one-time items are not mate­r­ial. Dur­ing the last reported fis­cal year, com­pa­nies con­cealed over $41 bil­lion in one-time items.

    Report on Hidden Expenses and Income: http://blog.newconstructs.com/2011/03/01/red-flag-report-wha...

    Economic Earnings Definition: http://blog.newconstructs.com/2010/08/05/economic-versus-acc...

  • Report this Comment On March 07, 2011, at 5:12 PM, TMFBomb wrote:

    @buprenorphine,

    Good line...made me laugh.

    See my response from earlier in the string:

    Although there are no truly foreign stocks on the list, many have significant global exposure (Philip Morris International being the extreme example). This is a personal list of 20 and I am weighted heavily in U.S. stocks in my individual stock selections. I will buy ADR's, but I get most of my foreign exposure via ETF's and mutual funds.

    Also, since I'm looking for companies that are going to be around 20 years from now, the list skews large cap and it skews American.

    Fool on,

    Anand

  • Report this Comment On March 13, 2011, at 7:59 PM, riwaterman wrote:

    "I considered Apple and Google, but I had a harder time envisioning the competitive landscape for them in the next 20 years vs. the other companies on the list."

    but on the other hand you included Altria and Philip Morris. i find it hard to believe that these two companies will be growth companies over the next 20 years. Smoking hot stocks perhaps but not for a riight reason.

    Both google and apple have demonstrated their ability to grow and grow and grow. google has had some mis-steps and android may be one of those BUT they are bigger than that and even IF android competes well, they don't make a bunch of $$ from that. Apple on the other hand makes money at very high margins, has retail stores, has creativity and leads its competitors to new markets all the time. Microsoft is only good as a dividend producer now and this needs to be watched. They are not the cash producer they used to be.

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