Lists, lists, and more lists. Americans love rankings. We love anything that pits one side against another. We're a country of capitalists. Capitalism breeds a competitive environment, and you can't pick the winners without rankings.
I'll let you in on a little secret: The elves have been working overtime here at Fool HQ to prepare a top 25 Rule Maker list that will be available for free (a $20 value) to the enrollees of our March seminar, The Art of Rule Maker. You'll have to forgive me and the rest of the gang here for talking up this seminar. Quite simply, we're stoked about the lessons we are preparing that will launch the Rule Maker portfolio into the next century. (The year 2000 was really part of the 20th century, but you, of course, knew that.)
Another list that carries some weight around here is America's Most Admired Companies (AMAC), a list put together by Fortune each year. This year's list, based on a survey of 4,000 businesspeople, is already up on Fortune's website, and it puts 7 of our 11 Rule Makers up against their peers in categories like Management Quality, Innovativeness, and Employee Talent (check out the ratings and categories and you'll enjoy this column much more). I love this stuff. Lists like the 100 Best Companies to Work For and the 100 Fastest-Growing Companies provide a perfect starting point for locating great Rule Maker investments. But, enough puckering up to Fortune, let's see how our Makers fared this year.
You might be wondering why only 7 of our 11 Rule Maker holdings managed to make the list. What happened to the other four? Well, Nokia (NYSE: NOK) and JDS Uniphase (Nasdaq: JDSU) were not eligible because this is a list of American companies and top U.S. subsidiaries of foreign companies. (In Fortune's Global Most-Admired Companies list, however, Nokia ranks #8 overall.)
T. Rowe Price (Nasdaq: TROW) and Yahoo! (Nasdaq: YHOO) simply did not make it due to size. Only the top 1,000 U.S. companies ranked by revenue are considered. Last year's Fortune 500 list, which is based on calendar 1999 revenue totals, shows that the number 1,000 company had $1.162 billion in revenue. T. Rowe's top line for calendar 1999 was only $1.036 billion and, despite Yahoo!'s market cap of $18 billion, it tripped on the revenue hurdle with only $591.8 million in calendar 1999 revenue.
On to our winners. Three of our current Rule Makers -- American Express (NYSE: AXP), Cisco Systems (Nasdaq: CSCO), and Microsoft (Nasdaq: MSFT) -- finished at the top of their respective industries. Numero uno. A #1.
Honestly, AmEx is a gimme, but I was a little surprised to see Microsoft, a convicted monopolist in the eyes of the Department of Justice (DOJ), at the top of the computer software list. Even more amazing is that Microsoft's social responsibility rating, the closet thing in the survey to measuring a company's "character," was 6.49 compared to an average for the top 10 AMACs of 6.72. Microsoft's social responsibility rank was 135 overall. If the executives of U.S. companies think so highly of Microsoft, why is the DOJ pursuing it with the vengeance of a teen girl after front-row 'N Sync tickets? The fun's over, feds. I think it's safe to let the tech giants fend for themselves.
Rule Maker Intel (Nasdaq: INTC) and FOOL 50 component Texas Instruments (NYSE: TXN) came in head-n-shoulders above the rest in the semiconductor industry, with the #2 and #1 spots, respectively. Advanced Micro Devices (NYSE: AMD) failed to beat either of these companies in any of the eight categories measured. Intel continues to pull away from the pack. As I noted in a recent research piece, Intel's calendar 2000 investment income of $4.7 billion was larger than all of AMD's 2000 revenues of $4.6 billion!
I've said it before and I'll say it again -- management is key to these companies. In our upcoming Rule Maker seminar, we'll get into great managements and how essential the top brass is to making and running Rule Makers. The management quality ratings of Cisco and General Electric (NYSE: GE) both come in at 8.88, a rating behind only three (out of 504) other companies, two of which are FOOL 50 companies -- Citigroup (NYSE: C) and Enron (NYSE: ENE).
The sky is not always blue in Makerland. The venerable beverage giant and one of the Rule Maker's first purchases, Coca-Cola (NYSE: KO) came in with an overall rating of 6.63 -- fourth place in the beverage industry. And, just as AMD failed to beat Intel, Coke was bested by PepsiCo (NYSE: PEP) in every category. Rich listed Coke's recent problems in Monday's column: "a product recall in Europe; the Asian economic crisis, which precipitated problems in Russia and led to expensive asset write-downs; a management shakeup; a series of onetime charges from the company's bottling partners; and a restructuring that included thousands of layoffs at company headquarters in Atlanta. Ouch." Ouch is right.
How has this company managed to survive through a boatload of missteps over the past three years? One word: brand. The ultimate symbol of competitive advantage and the reason we still own Coke.
And now, a word from our sponsor: "Viagra -- returning the Fountain of Youth to Florida's residents."
Seriously, Viagra is probably the most-recognized prescription drug on the market and is poised to become a blockbuster (over $1 billion in sales) for Pfizer (NYSE: PFE). Despite Pfizer's envious pipeline and product portfolio, it only captured the #3 spot in the pharmaceutical ratings. Schering-Plough (NYSE: SGP) eked out the #6 spot. But, Pfizer did capture the #1 ranking in management quality and innovativeness, two of the qualities that drive expanding possibilities. It's also noteworthy that, within the pharmaceutical rankings, there is less than 0.7 points difference in the average score between #1 and #7 (7.36 vs. 6.67). A tuck here, a nip there, and any of the top contenders could vault to the top. That says something about the high business quality across the entire pharmaceutical sector.
Notable mention goes to Finance King Charles Schwab (NYSE: SCH) for making the top ten at #8. Schwab pulls in a very respectable management quality rating of 8.68, and one of the survey's highest innovativeness ratings of 9.09. But, perhaps even more impressive is that this once-passed-over financial services firm sits atop a list with names like Goldman Sachs Group (NYSE: GS), Morgan Stanley Dean Witter (NYSE: MWD), and Merrill Lynch (NYSE: MER). In with the new, out with old. If this isn't evidence that capitalism works, what is?!
Todd Lebor is a co-manager for the Rule Maker portfolio and lives in Alexandria, Virginia. At the time of publication, he owned shares of CSCO, MSFT, INTC, PFE, and SCH. Todd's other holdings can be found in his personal profile. The Motley Fool is investors writing for investors.