"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
Meet the world's greatest company: ExxonMobil. 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 – Chevron
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. Wal-Mart
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 $84 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
Now consider a company whose fates hinge on innovation, Apple
- Kraft Foods
- R.J. Reynolds Tobacco (now owned by Reynolds American)
- Standard Oil of New Jersey (ExxonMobil)
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.
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:
- Look for owner-operator cultures and management teams motivated to focus on long-term results.
- Know that steady, lasting demand helps deliver expectation-beating results over time.
- 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.
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This article was first published April 9, 2009. It has been updated.
Senior analyst Joe Magyer owns shares of Procter & Gamble. Procter & Gamble is an Income Investor recommendation, as is Coca-Cola. Wal-Mart, Microsoft, and Coca-Cola are Inside Value recommendations. Apple is a Stock Advisor recommendation, while Google is a pick of Rule Breakers. The Motley Fool owns shares of Procter & Gamble. After getting through all that, The Motley Fool's disclosure policy needs to go lie down for a bit.