Beware of “Best Citizen” Equities
August 3, 2015
Socially minded investors are following a false prophet.
SharedXpertise, a hybrid business association, conferencing, and trade publishing company, issues an annual list of what it considers to be the 100 leaders in corporate responsibility. The results are not much of a reflection of value for investors in search of the best stocks to buy.
The research partners enlisted by SharedXpertise gather 303 data points from each of the Russell 1000 companies. The information is all publicly available from the companies or elsewhere. None of it is proprietary.
Last year, we tabulated the one-year returns for the top 15 equities on the SharedXpertise list. The “best corporate citizens” were outperformed by 68% of their benchmark peers. The competitors are those identified by DailyFinance, an AOL company providing independent financial news and advice.
Eight of the top 15 actually returned less to their investors than all three of their main competitors (see Best Corporate Citizen List Shortchanges Investors , 27 April 2014). Once again this year, the “best” do not carry their weight on the scale of financial performance.
SharedXpertise announced the components of the new top 100 chart on 20 April 2015. Investors who owned the previously named top 15 companies for the one-year period prior to that date would have been sorely disappointed. Only four of them outperformed all three of their benchmark peers. The corporate citizens with winning financials were Bristol Myers Squib (ranked first on the SharedXpertise top 100), Disney (ranked 10), Lockheed Martin (ranked 14), and Accenture (ranked 15).
Three of the top 15 corporate citizens lost out to all of their benchmark stocks. Mattel lost 25% of its value during the year when it was ranked fifth among the top 100 best corporate citizens. Compare that performance to Hasbro’s stock, which gained 37.5% during that time. MAT’s other competitors Pool Corp. and Polaris Industries improved by 21% and 8%, respectively.
The two other best citizens swept away by their peers were Johnson & Johnson (ranked second) and Ecolab (ranked seven). Five of the top 15 best corporate citizens lagged two of their three main competitors. Typical of the profile of this group of losers was The Gap. GPS had a handsome gain of nearly 8%. Sounds good until the stock performance is compared with nearly a 48% rise for Home Depot and the 12% gain for TJX Companies. Only the Swedish retailer Hennes & Mauritz fell behind, rising half as much as GPS.
Three equities in SharedXpertise’s top 15 outpaced two of their three competitors. But the performance has sour note. Johnson Controls (ranked second) gained 10% while Bridgestone Corp. rewarded investors with nearly a 23% gain. Intel Corp. (ranked eighth) rose 25% and far outstripped two of its benchmark peers; but Texas Instruments rose 29.5%. Campbell Soup (ranked 11) won easily by improving 7% compared with a 4% gain by Nestle. However, CPB lost out by to Unilever by a percentage point.
New 2015 listing
How would investors have fared if they were prescient and held the 15 top equities on the new 2015 list of best corporate citizens?
Looking back one year from 20 April 2015, three of the new “best corporate citizens” would have lost against all three of their competitors. More favorably, five would have surpassed all their benchmark peers.
Conversely, five of the top 15 would have lost against two of their main competitors. Two of the “best corporate citizens” listed this year would have beaten two out of their three competitors.
We will have to wait until April 2016 to see what financial returns this year's best corporate citizens return to their socially responsible and environmentally concerned investors.
This year the 12 “best corporate citizens” are also sorted out in six research categories. Measurements of transparency, accountability, and business success yield these first-place companies: Johnson Controls for environmental performance; IBM for climate change; Microsoft Corp. for human rights; Xerox Corp. for employee relations; Campbell Soup for corporate governance, and Microsoft for philanthropy and community activities.
The seventh category addressed in the “best corporate citizens” research is omitted. The top financial performers are not announced. The reason given is surprising. A financial-measurement-only list of leaders is said to be outside the mission of SharedXpertise and its CR Magazine.
For more information contact William D’Alessandro, Executive Editor, Victor House News Co., P.O. Box 464, Amherst, NH 03031, USA. Tel: +1 603 672 5811; Fax: +1 603 732 0787; E-mail: email@example.com.