Good to Great Stocks: What Is Happening With Them Now?
Do you know the difference between hedgehogs and foxes? Are you familiar with the concept of the right people? Dealing with hard facts and the Stockdale paradox? Do you know what I mean when I mention the culture of discipline and technological accelerators?
If you remember and understand these terms, then you know I’m talking about the book “Good to Great” by Jim Collins. In this article, we will cover the current situation that happened to these companies.
For those who have not read or don’t remember, I will put below a brief description of what the book is about.
Book “Good to Great” – Brief Description
It is a well-researched book that began with an analysis of 1435 companies. The list was narrowed down to only 11 companies based on strict criteria. These companies were included in the group of transformed great companies which are analyzed throughout the book.
Selection criteria for transformed excellent companies
- A good company is one that is not 1.25 higher than the average profit in the market in the fifteen years before the company’s transition.
- An excellent company is one that has at least 3 times the cumulative profit of the market average for the fifteen-year period after the company’s transition.
- There must be a change in the company, not in the whole industry.
- It must have existed at least 25 years before the transition and must have at least 10 years of financial statements before the transition.
- The transition had to occur before 1985, in order to prove this with sufficient data in the assessment.
- The company had to be on the top 500 list from forbes magazine in 1995 for prestige and independence.
Based on these criteria, the author came up with 11 companies that went from good to great. It studies in detail the factors that lead companies through the transition. The main factors Jim Collins considered are listed below.
A very interesting book and a way of looking at “good to great” companies.
If you want to read the book or learn more about it, you can order it from the link below that will take you to the Amazon page.
What Is Happening With Good to Great Stocks in 21st Century?
Now, let’s get back to the fun part. Jim Collins mentioned 11 companies that transformed from good to great. Given that it’s been 20 years since the book was written (it was published in 2001), I think it would be interesting to check on these companies in the 21st century.
The following companies are the so-called 11 finally selected:
- Abbott Laboratories,
- Fannie Mae,
- Kimberly-Clark,
- Nucor,
- Wells Fargo,
- Gillete,
- Kroger,
- Pitney Bowes,
- Walgreens,
- Circuit city,
- Philip Morris.
We will go through them one by one.
Abbott Laboratories
Abbott Laboratories made 3,98 times higher fifteen-year result than the market. In the graph below you can see the market value of the SP500 compared to the Abbott Laboratories stock for the period 1974-1989.
Abbott Laboratories 1974-1989. by FinanciallyFitInvestor on TradingView.com
In a new comparison relating to the 21st century, we note that the stock is still as good in relation to the market as it was in the 20th century.
Abbott Laboratories 2000-2021. by FinanciallyFitInvestor on TradingView.com
Fannie Mae
Fannie Mae made a 7,56 times higher fifteen-year result than the market in the period from 1984 to 1999. In the graph below you can see the market value of the SP500 compared to the Fannie Mae stock for the period 1984-1999.
Fannie Mae 1984-1999. by FinanciallyFitInvestor on TradingView.com
Fannie Mae stock is still traded on the market, but it’s not anymore on a public stock exchange. The price was too low to be eligible for trading according to the rules of the exchange. Before that Fannie Mae traded on NYSE.
Since it’s been delisted, Fannie Mae has been traded under the symbol FNMA on over-the-counter exchanges. In an over-the-counter system, the trades are made between individuals who negotiate directly the prices by which they buy and sell.
Comparing to the SP500 you can see that in the 21st century Fannie Mae stock has sunk completely.
Fannie Mae 2000-2021. by FinanciallyFitInvestor on TradingView.com
Kimberly-Clark
The stock achieved a fifteen-year result from 1972 to 1991 that is 3.42 times higher than the market. In the graph below you can see the market value of the SP500 compared to the Kimberly Clark value for the period 1972-1991.
In a new comparison relating to the 21st century, we note that the stock is no longer as good in relation to the market as it was in the 20th century.
Kimberly Clark 2000-2021. by FinanciallyFitInvestor on TradingView.com
Nucor
The stock achieved a fifteen-year result from 1975 to 1990 that is 5.16 times higher than the market. In the graph below you can see the market value of the SP500 compared to the Nucor value for the period 1975 to 1990.
In the 21st century, shares of Nucor are doing well throughout the period, and in 2021 it jumped, as can be seen in the graph, and thus achieved an increase better than the market.
Nucor 2000-2021. by FinanciallyFitInvestor on TradingView.com
Wells Fargo
The stock achieved a fifteen-year result from 1983 to 1998 that is 3.99 times higher than the market. In the graph below you can see the market value of the SP500 compared to the Wells Fargo value for the period 1983 to 1998.
In a new comparison relating to the 21st century, we can see that the stock is no longer as good in relation to the market as it was in the 20th century. It has high volatiltiy.
Wells Fargo 2000-2021. by FinanciallyFitInvestor on TradingView.com
Gillete
Procter & Gamble bought Gillette for $57 billion deal in 2005. As a result of the purchase, the Gillette company no longer exists, nor do the brands the company owned. In addition to Gillette, P&G also took over the Braun, Duracell, and Oral-B brands.
Kroger
The stock achieved a fifteen-year result from 1973 to 1988 that is 4.17 times higher than the market. In the graph below you can see the market value of the SP500 compared to the Kroger value for the period 1973 to 1988.
In a new comparison relating to the 21st century, we can see that the stock value of Kroger is making good results as it was in the 20th century.
Kroger 2000-2021. by FinanciallyFitInvestor on TradingView.com
Pitney Bowes
The stock achieved a fifteen-year result from 1973 to 1988 that is 7.16 times higher than the market. In the graph below you can see the market value of the SP500 compared to the Pitney Bowes value for the period 1973 to 1988.
In a new comparison relating to the 21st century, we note that the stock is no longer as good in relation to the market as it was in the 20th century.
Pitney Bowes 2000-2021. by FinanciallyFitInvestor on TradingView.com
Walgreens
The stock achieved a fifteen-year result from 1975 to 1990 that is 7,34 times higher than the market. In the graph below you can see the market value of the SP500 compared to the Walgreens value for the period 1975 to 1990.
In a new comparison relating to the 21st century, we note that the stock is no longer as good in relation to the market as it was in the 20th century.
Walgreens 2000-2021. by FinanciallyFitInvestor on TradingView.com
Circuit City
Circuit City, was the first major electronics superstore chain with more than 800 stores at its peak. However, strong competition, outdated stores, and abandoning the appliance business led to declining sales.
Circuit City announced in January 2009 that it was going out of business and liquidating stores. The final day of operation was March 8, 2009.
Systemax bought the Circuit City name, trademarks, and website at auction out of bankruptcy. In November of 2012, Systemax consolidated under the TigerDirect brand and the use of the Circuit City brand name ended after 63 years.
Philip Morris
The stock achieved a fifteen-year result from 1964 to 1979 that is 7,06 times higher than the market.
In a new comparison relating to the 21st century, we can notice higher stock volatility and lower growth than the market.
To Sum Up
Of the 11 good to great companies of Jim Collins, only Abbott Laboratories, Nucor and Kroger are achieving results that are better than the market (SP500 index).
Other companies have not shown such ability to grow their market value, and some have even disappeared as Fannie Mae has made its way into the OTC market or the Gillette that was bought by P&G.