Monday, October 20, 2014

The Fortune 10 versus the S&P index.

Question:   How have the stock prices of the top-ten in sales from the 2013 Fortune list done year-to-date in 2014?

Comment on the likely merits of investing in the largest Fortune companies rather than a broader index like the S&P index.

Answer:   The stock price percentage change for the 10 largest companies based on sales, the arithmetic average of the 10 stock price percentage changes, and the change in the S&P index are presented below.



Top Ten In Sales from the Fortune 2013
Year to date change in stock price of the top Fortune 10 by Sales
Walmart
-4.51
Exxon
-9.32
Chevron
-10.74
Philips 66
-6.20
Berkshire Hathaway Inc
15.71
Apple Inc
25.90
General Motors Inc
-25.76
General Electric Company
-10.70
Valero Energy Corporation
-8.12
Ford Motor Company
-8.17
Average 10-ten Fortune
-4.19
S&P Index
3.15



Observations:


Eight of ten of the large firms have a stock price decline year to date.

Only Apple and Berkshire are in positive territory.

The S&P average is a positive 3.15.

The average of the top 10 is -4.19.


Comments:  

The top 10 by sales is heavily weighted in energy and cars.  This is not a diversified portfolio.   The top-ten in sales would have looked better a couple of months ago prior to the drop in the price of oil but the lack of balance creates a lot of risk.

My other concern with a high exposure to large companies is that often you are catching these companies when they are peaking.  In past years, this list would have included the old General Motors and Enron.  Size does not always equal safety or guarantee nice returns.  




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