Strong Company Reputations Aren’t Always What They Seem
Amazon.com is widely popular. In fact, according to a Harris Interactive survey of 14,000 individuals Amazon enjoys the best reputation among the general public of any company. But wait. Last year last year Apple topped Harris Interactive same survey and recently it has seen its stock plummet by more than 20 percent. Mark Hulbert, editor of the Hulbert Financial Digest argues that the most admired companies aren’t always the best investments.
March 13 2013 by ChiefExecutive.net
Pointing to a study that appeared two years ago in the Journal of Portfolio Management titled “Stocks of Admired and Spurned Companies,” Hulbert thinks great reputations tend to be overvalued. The articles authors examined the stocks of firms that appeared on Fortune’s annual list of “America’s Most Admired Companies from 1983 to 2007. The Fortune list is compiled differently than the Harris survey but many of the same firms appear on both lists. The researchers found that the spurned companies at the bottom of Fortune’s list often fared better than those that appeared at the top. Hulbert’s thinking as written recently in The Wall Street Journal, is a contrarian interpretation. Stocks that appear among the most admire have already performed well over the previous 12 months. This may be one of the reasons the company is highly admire in the first place.
But investors might want to take a look at spurned companies. Hulbert thinks that such companies don’t necessarily have to perform well for its stock to be a good bet. Companies that enjoy the worst reputations according to Harris (see below) include AIG, Goldman Sachs, and Citigroup. Their bad odor is likely fueled by memories of their association with the credit crunch of 2008.
Hulbert says that trying to profit from contrarian patterns such as reputation can be tricky. “The broader investment lesson is to avoid getting caught up in the herd mentality that otherwise can so easily influence our stock picking,” he writes.
Following is Harris Interactives’ 10 companies with the worst reputation in America.
- Reputation score: 60.99
- 2012 score: 59.10
- 12-month sales: $61.68 billion
In each of the last three years, Harris Interactive has ranked Comcast Corp. (NASDAQ: CMCSA) as one of its least reputable companies. A major issue for the company has been customer service. According to MSN, at least 20% rated Comcast’s customer service as “poor” — just one of three companies with so many dissatisfied customers. ACSI reported last year that both Comcast’s fixed line telephone and subscription television businesses were ranked among the lowest in their respective sectors for consumer satisfaction. But poor customer sentiment has not hurt the company’s bottom line. Shares are up over 47% over the last year, and the company was recently able to purchase the remainder of NBCUniversal for $16.7 billion.
9. Wells Fargo
- Reputation score: 60.47
- 2012 score: 59.50
- 12-month sales: $78.87 billion
Wells Fargo & Co.’s (NYSE: WFC) reputation score rose only slightly compared to last year. Still, according to Harris Interactive, it became the first of the “big four” banks whose consumers indicated they have started to admire and trust again. In the last year, the company’s stock rose just 16%, versus 29.4% for JPMorgan, 33% for Citigroup, and more than 50% for Bank of America. The company has also been unable to separate itself from perceptions of other similarly-large banks among consumers. Alongside JPMorgan, Bank of America, and Citigroup, Wells Fargo was named one of the worst companies for customer service in 2012 by MSN and JZ Analytics.
8. J.P. Morgan
- Reputation score: 58.20
- 2012 score: 54.84
- 12-month sales: $93.65 billion
While the financial crisis didn’t hit the bank as hard as it did most of its peers, J.P. Morgan Chase & Co. (NYSE: JPM) has had its share of controversies over the past year. The company lost approximately $5.8 billion when a trader commonly referred to as the London Whale took excessively large trading positions in complex financial instruments that ended up souring. In addition, there have been reports that the firm pushed its own mutual funds to clients over competitor funds even though they had cheaper and more-profitable options. J.P. Morgan’s brand value in 2012 declined 8% compared to 2011, according to Interbrand.
- Reputation score: 56.55
- 2012 score: 53.50
- 12-month sales: $370.87 billion
In 2010, the Deepwater Horizon Oil Spill damaged BP PLC’s (NYSE: BP) reputation so deeply that three years later — even after its CEO resigned in disgrace — it remains both highly visible and poorly rated. One reason for the company’s continued visibility, explained Harris Interactive’s Robert Fronk, is its own continuing ad campaign to highlight the remediation efforts it has made in the gulf region. “What they’re doing,” Fronk explained, “is saying ‘we’re owning up to it, and we want you to know that we didn’t just make a one-time payoff and we hope you forget about it, we’re trying to show you over a five-year window that we continue to take accountability for what happened.” Since 2011, BP has had one of the largest improvements in reputation of any company Harris has measured.
- Reputation score: 55.90
- 2012 score: 55.95
- 12-month sales: $59.32 billion
Citigroup Inc. (NYSE: C) is still working to improve its image following its near destruction at the height of of the financial crisis, even as it continues to struggle. Brand Z noted that Citi’s brand value has declined 38% in the last year. Interbrand, on the other hand, said in its study that Citi’s brand value has declined just 12% year-over-year. Only 17.3% of respondents to the MSN survey rated Citigroup’s customer service as “excellent,” while 17% rated the customer service as “poor.” Citigroup has undergone some changes recently. The company’s board ousted CEO Vikram Pandit in October and replaced him with company veteran Michael Corbat. The company recently announced it was cutting 11,000 positions from the company.