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
||A powerful shipping network that throws off impressive returns on capital. Poised to take advantage of increases in online commerce.|
Philip Morris International
|They split the world under the Marlboro brand. Threat of litigation has historically allowed reinvestment of their large dividends at cheap earnings multiples.|
||A large bank that sets the standard for focus and quality lending.|
Johnson & Johnson
||The one-stop "health-care mutual fund," with strong brands in medical devices, pharmaceuticals, and consumer goods.|
|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.|
|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.|
|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.|
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.|
|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.