The Most Profitable Companies in America
Firms with a clear vision of how to increase value for shareholders could be a terrific buy right now. But companies without a good game plan will likely see their stock prices fall as they fritter away their earnings.
The hardest part? Learning to separate the former from the latter. Here's a list of the most profitable companies in America, along with our prediction of which direction the stock is heading.
Citigroup (NYSE: C) - $10.6 Billion
For many years, Citigroup (NYSE: C) was the most profitable banking firm in the United States. But a series of foolish moves allowed JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) to surpass them.
To get back to the head of the pack, Citigroup is repositioning itself as a key player in fast-growing emerging economies. Indeed, Citigroup now derives more than half its revenue from abroad.
Although the bank's turnaround is not yet complete, the story should become a lot cleaner with each passing quarter, and eventually, investors should embrace the bank as a way to hedge against a falling dollar and as a way to have greater exposure to more dynamic economies elsewhere.
Photo courtesy of wikipedia.commons.org.
ConocoPhillips (NYSE: COP) - $11.4 Billion
And if you think oil will continue to be expensive in the future, ConocoPhilips could be the ultimate value stock. The current dividend yield is 3.4% and management has a reputation for allocating capital to shareholders in the form of dividend increases and share buybacks -- all good news for investors.
Photo courtesy of wikipedia.commons.org.
Intel (Nasdaq: INTC) - $11.5 Billion
If you own a smartphone, you are an indirect customer of Intel (Nasdaq: INTC). Though they don't manufacture or sell any smartphone components, Intel makes processors that help data center servers keep up with the demand, and the smartphone boom has been nothing but good for the company.
In addition to its profit-generating ability, Intel also has huge cash hoards. Using its cash to acquire fast-growing firms can be an effective way to boost its own growth, so look for Intel to get in on the market's M&A activity in the coming months.
Photo courtesy of Flickr- Josh Bancroft.
General Electric (NYSE: GE) - $11.6 Billion
It's 2010 profit results are all well and good, but the historical numbers show that General Electric (NYSE: GE) has lost its way and needs a turnaround to return to the growth heyday it experienced while under the fearless leadership of Jack Welch.
GE Capital, GE's massive finance arm, was a major profit driver under Welch, but it nearly ruined the company during the financial crisis. Back in 2007, GE Capital accounted for 55% of net income. That share fell to 13% in 2009.
Current CEO Jeffrey Immelt has a goal to limit GE Capital to no more than 40% of profits going forward, though it only recovered to 28% of profits in 2010, so it has some way to reach that level. GE will inevitably turn around its operations at some point, but there is no need for investors to wait for the company to find its way.
Photo courtesy of Flickr- Matt Millard.
Coca-Cola (NYSE: KO) - $11.8 Billion
The world's biggest soft drink maker, Coca-Cola (NYSE: KO), recently posted strong first quarter results, with a comparable net income of $6.4 million. With a powerful global distribution network, Coca-Cola products are currently sold in more than 200 countries and boast 500 different beverage brands. In the coming years, more than $20 billion will be spent to expand into emerging markets like Africa, Russia, Mexico and China.
Helping drive growth is the recent acquisition of Coca-Cola Enterprises, the company's largest bottling unit in North America. It will now be cheaper for the company to produce and bottle smaller scale products -- like the 100-calorie Coke can -- to cater to calorie-conscious consumers.
Through the acquisition, Coke expects to improve business operations by better controlling product distribution so it can more quickly respond to changing market demand. As a result, Coke expects to save more than $350 million a year for the next four years. These savings should mean good news for shareholders.
Photo courtesy of Flickr: Kyle May.
Wells Fargo (NYSE: WFC) - $12.4 Billion
One thing has been clear about Wells Fargo (NYSE: WFC): the San Francisco-based bank seems to have adroitly sidestepped a great deal of the potholes besetting the banking sector the past few years. It hasn't been immune to the powerful forces of a down economy, but at least its management hasn't been pilloried by the press (like Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS)), and it didn't make life-threatening bad investments that led to government handouts (like Citigroup).
Restrictions put in place when the TARP program was in effect have limited the annual dividend, but banking analysts think the payout ratio will eventually rebound to 30%, implying a $1.08 dividend based on 2012 profit forecasts. As the economy improves, the dividend could move even higher, creating the impetus for a dividend yield above 4% when measured against today's stock price.
And it certainly doesn't hurt to have Warren Buffett as your co-investor. Buffett's continued bullishness on the bank should be heartening to even the most bank-ophobic investors.
Photo courtesy of Flickr -- Neubie.
Procter & Gamble (NYSE: PG) - $12.7 Billion
After selling Pringles, Procter & Gamble (NYSE: PG) is officially out of the foods game. They are currently taking active steps to distance themselves from competition by expanding their health care brands into overseas markets, mainly in China and India.
P&G is also taking advantage of the rise in e-commerce popularity, recently entering the e-commerce market with an e-store. This new strategy has seen significant penetration in North America and Asia, where they are able to extend their reach into under-served, emerging markets.
Photo courtesy of Flickr - Brandon C.
Berkshire Hathaway (NYSE: BRK) - $13.0 Billion
Warren Buffett has relayed numerous times that future growth rates at Berkshire Hathaway (NYSE: BRK-A) will fall below historical growth trends, but he still thinks there is potential for investors to earn above-average returns by investing in the stock. Just take the past two years as an example -- book value grew 19.8% in 2009 and 13% in 2010.
This suggests Berkshire is still able to compound wealth at a double-digit rate going forward. And regardless of growth rates, the company is so well-managed that it's difficult to imagine it even being unable to generate large profits for shareholders.
Last year, Berkshire hired money manager Todd Combs to help reshape the company's $63.2 billion equity portfolio. Combs didn't wait long to make his first big move, as Berkshire recently reported a stake in MasterCard, Inc. (NYSE: MA), valued at $54.4 million.
Photo courtesy of wikipedia.commons.org.
Johnson & Johnson (NYSE: JNJ) - $13.3 Billion
Johnson & Johnson (NYSE: JNJ) has increased its dividends for the past 48 straight years, at an average rate of about 13.4% per year since 2000. If you purchased 200 shares of JNJ in 1980 (an investment of $14,600) and never added new money but just reinvested all the dividends, the position would be worth $1.15 million today. That's a 7,868% return.
In other words, it's like buying a house in 1980 for $146,000 that today is worth about $11.5 million. Home values didn't appreciate anywhere near that much. That's the power of growing dividends.
Photo courtesy of Flickr - aldinegirl87.
Apple (Nasdaq: AAPL) - $14.0 Billion
There is only one large U.S. corporation that can truly be called a growth stock: Apple (Nasdaq: AAPL). The company's performance was impressive enough that net income rose from $8.2 billion in 2009 to $14 billion in 2010.
What's more impressive is the road ahead. Merrill Lynch predicts Apple will earn $34 billion by 2013, putting it at a close second behind ExxonMobil for the claim of America's most profitable company.
Photo courtesy of Flickr -- Bacr Aptemob.
Int'l Business Machines (NYSE: IBM) - $14.8 Billion
Int'l Business Machines (NYSE: IBM), affectionately referred to as Big Blue, is a titan in the technology industry. The company generated almost $100 billion in revenue last year and is about as diversified a technology company as can be found, spanning software, services, hardware and financing.
IBM's presense abroad makes it fantastic play in a weak dollar environment -- just over one-third of sales stem from the United States, with the rest being generated in Europe, Asia and the rest of the world.
Photo courtesy of Flickr -- Patrick H~.
Wal-Mart Stores Inc. (NYSE: WMT) - $16.4 Billion
Despite falling same-store sales in the U.S. for two consecutive years, Wal-Mart (NYSE: WMT) posted a profit in both 2010 and Q1 of 2011. Their average U.S. shopper spent more per visit in Q1 of 2011, and their U.S. same-store sales of groceries and health and wellness items has increased for two consecutive quarters.
Wal-Mart's domestic foot traffic is down, but international sales are soaring. Their profits have come largely from an 11.5% increase in international sales, offsetting the impact of the domestic slump with strong gains in all countries except Japan.
Wal-Mart is a well-run company that has historically provided long-term value to its stockholders, so don't be discouraged by the domestic sales slump, they are still turning profits.
Photo courtesy of Flickr -- Walmart Stores.
JPMorgan Chase (NYSE: JPM) - $17.4 Billion
The entire banking sector is still wheezing back to life, so the next few years could represent a return to traditional banking profit margins. Notably, analysts' forecasts anticipate subdued lending activity in 2011 and 2012 and, more than likely, bank profits will be meaningfully higher again in 2013 and beyond, granted the economy is truly healthy (and the housing market gets out of the sickbed).
Therefore, the opportunity to buy shares of banks like JP Morgan Chase (NYSE: JPM) while they trade for less than 10 times 2012 profits looks quite appealing. Trouble is, some investors are convinced that we haven't seen the end of the mortgage crisis. So buying these bank stocks today certainly carries some short-term risk that more funds will need to be set aside to cover future liabilities.
Photo courtesy of David R. Tribble.
Microsoft (Nasdaq: MSFT) - $18.8 Billion
There are some who believe that Microsoft's (Nasdaq: MSFT) best years are behind it and the company is riding into the sunset. While Microsoft is no longer synonomous with tech's tomorrow (see Google, Facebook and Apple), there is no denying that company is still a cash cow.
Microsoft just announced its acquisition of Skype in a deal valued at $8.5 billion. Microsoft plans on intregrating its technology with the XBox console, Kinect device and its Windows Phone platform. This may be the deal that yields the strategic benefits Microsoft needs to stop following the leaders in the industry, and start leading again.
Photo courtesy of Flickr -- Robert Scoble.
Chevron (NYSE: CVX) - $19.0 Billion
Chevron (NYSE: CVK) is a top-five oil firm, given its vast reserves of oil and natural gas. Growth during the past decade has been stellar, as sales have improved 15.5% and earnings by 17.5% on average each year in the past decade. Growth is projected to continue apace, with the earnings consensus for this year at $12.12 a share, or nearly 30% above last year's levels.
At the current price, Chevron offers the solid combination of a low earnings multiple, a decent dividend yield of 2.7% and strong projected growth. And nearly 60% of last year's stales stemmed from overseas, giving the company exposure to faster-growing regions outside of the United States.
Photo courtesy of Flickr -- Jonathan McIntosh.
AT&T (NYSE: T) - $19.9 Billion
AT&T (NYSE: T) posted a $19.9 billion 2010 net income, and $1 billion of that money is being invested in the cloud computing business in 2011. This will help AT&T achieve tremendous efficiencies and flexibility in cloud-based environments in order to provide applications for any type of device.
Photo courtesy of Flickr -- Chris Young.
Exxon Mobil (NYSE: XOM) - $30.5 Billion
There's no debate over how Exxon Mobil (NYSE: XOM) will use its prodigious profits. The energy giant has spent eight years buying back stock, and there's no indication that it will stop now. Exxon Mobil has bought back two billion shares since 2002, leading to a 29% reduction in its share count.
Assuming Exxon Mobil will once again focus on stock buybacks, the share count may drop from the current 4.8 billion to just four billion by the middle of 2013. For a company with $30 billion in annual income, the shrinking share count could mean record profits per share.
Photo courtesy of www.austinpost.org.