An Unusual Place to Find Great Stock Ideas
A recently announced annual list of companies may lead to outperformance in the markets.
I’m always on the look for off-the-beaten-path sources of stock ideas. So when I came across the following chart recently, it caught my attention:
Let me back up for a second…
Every year, job-search website Glassdoor announces its list of Best Places to Work (“BPTW).
A few years back, Glassdoor shared the above chart showing that a $1,000 investment into the BPTW companies (green line below) would have dramatically outperformed the broad S&P 500 (blue line) from 2008 through the end of 2019.
Glassdoor explained the methodology:
[The chart] shows the value of a hypothetical $1,000 investment made in Best Places to Work winners at the end of 2008, along with a comparable investment in the S&P 500 index.
Each investment strategy begins with an initial investment of $1,000. On the last trading day of December each year, the hypothetical investor splits a $1,000 investment equally among each years’ Best Places to Work winners and also makes a $1,000 investment in the S&P 500 index, and holds both investments for one year, repeating the process each December.
In short, during this period, the initial $1,000 stake in the BPTW winners would have generated a 553% return, more than double the return of the S&P 500, which was up 258%.
And while I don’t have the time (or, frankly, the desire) to manually calculate and extend this chart through the end of 2023, it seems to be a worthwhile source of ideas.
Glassdoor explains its criteria for awarding BPTW winners, which include:
“Overall company rating, career opportunities, compensation and benefits, culture and values, diversity and inclusion, senior management, work-life balance, recommend to a friend and six-month business outlook.”
The companies must also qualify with the following:
At least 75 ratings across these nine attributes
At least 1,000 employees
A minimum 3.5 overall rating, and
A minimum 2.5 rating in each of the workplace factor ratings (career opportunities, compensation and benefits, culture and values, diversity and inclusion, senior management, work-life balance)
That these stocks as a whole outperform the S&P 500 is somewhat intuitive for a few reasons…
One, companies that rate highly on Glassdoor would tend to have lower turnover. High levels of employee retention is an indication of a well-run business that compensates its workers appropriately. High rates of turnover tend to be costly and disruptive for a business.
Second, these businesses are often innovative. A positive work culture leads to a more creative workforce encouraged to take risks, which leads to more breakthroughs.
Lastly, being recognized as a top employer is critical for a company’s brand reputation. These days, customers, investors, and prospective employees want to work somewhere that is respected for making the world a better place.
The reason I bring this up is that on Wednesday, Glassdoor revealed its list of 100 BPTW winners. Here are the publicly traded companies in the top 25:
Nvidia (Nasdaq: NVDA) - The leader in graphics processors — which enable cutting-edge technologies like self-driving cars, robotics, artificial intelligence, the metaverse, data science, video games, and more — has been one of the best-performing stocks (if not the best-performing stock) of the past decade, up a staggering 14,358%, outperforming the S&P 500 by more than 90 times.
ServiceNow (NYSE: NOW) - Over the past decade, the cloud-computing software-as-a-service firm — whose platform helps organizations automate and streamline their operations — has generated 1,121% returns for investors, more than 7 times the S&P 500’s return.
Procore Technologies (NYSE: PCOR) - Procore is a cloud-based software company that services the construction industry. It went public in May 2021, just prior to the bursting of the growth stock bubble. Still, it’s up slightly (4%), trailing the S&P 500, which has returned 15% over the same period.
Delta Air Lines (NYSE: DAL) - Airlines are capital-intensive businesses whose stocks tend to boom and bust over time. The country’s longest-running airline has returned 54% over the past decade, strongly underperforming the market.
Raymond James Financial (NYSE: RJF) - The financial services company offers asset management, banking, and other financial services to individuals, businesses, and municipalities. Shares are up 261% over the past decade, nearly twice that of the S&P 500.
Adobe (Nasdaq: ADBE) - The incredibly popular software company — whose offerings include Acrobat PDF reader, Photoshop design software, and more — has leaned into artificial intelligence lately. But it’s been a stellar stock for far longer than that, up 896% over the last 10 years, beating the S&P 500 by more than 5.5 times.
Toast (NYSE: TOST) - The biggest laggard on the list, Toast’s software services the restaurant industry. Its point of sale software allows restaurants to take orders and process payments, and it allows customers to order food from local restaurants through its app. Unfortunately, the timing of its IPO was ill-timed in September 2021, two months before growth stocks peaked. Though it’s profitable, it’s richly valued at today’s levels.
Microsoft (Nasdaq: MSFT) - One of the world’s leading software companies, Microsoft’s Windows is the operating system of choice on more than two-thirds of computers around the world. Its portfolio also includes cloud services (Azure), social media (LinkedIn), and more. Shares are up 1,170%, more than 7 times that of the S&P 500.
Autodesk (Nasdaq: ADSK) - Autodesk’s AutoCAD software services the architecture, engineering, and construction industries. Shares are up 363%, more than doubling up the S&P 500.
Moog (NYSE: MOG/A) - Moog makes precision motion control components and systems for military and commercial airplanes, satellites, space vehicles, missiles, and more. It’s been a solid stock, returning 123% over the past decade, slightly underperforming its benchmark.
eXp Realty (Nasdaq: EXPI) - eXp is a cutting-edge real estate brokerage firm that uses technology to help its agents do business anywhere. As COVID-19 transformed the way we work and interact with each other, EXPI shares soared. Over the past 10 years, the stock is up 2,809%, making it the second-best-performing stock on the list, and outperforming the S&P 500 by more than 17 times.
Eli Lilly (NYSE: LLY) - One of the two big winners in the weight-loss drug craze, Eli Lilly’s tirzepatide drugs have kicked its stock into high gear. Its portfolio of drugs treat diabetes, cancer, autoimmune diseases, migraines, rheumatoid arthritis, and more. Over the past decade, LLY shares are up 1,413%, making it the third-best-performing stock on this list.
lululemon (Nasdaq: LULU) - The wildly popular maker of high-end “athleisure” wear (think $200 running tights), lululemon has exploded in popularity over the years. Its stock has responded accordingly, up 748%, nearly 5 times the return of the S&P 500 over the same period.
Calix (NYSE: CALX) - The only company on the list I had genuinely never heard of before, Calix’s software helps manage and improve the internet's infrastructure. Its stock is up 423% over the past decade, beating the market by more than 2.5 times.
In total, these 14 stocks have returned an average of 1,692% over the past decade (including Toast and Procore’s abbreviated returns), versus the S&P 500’s 159% return.
Even taking out the big outlier in Nvidia, these stocks returned 718%, outperforming by 4.5 times.
Interestingly, more than half of the list is in tech, and seven are software companies. The tech industry is generally known for paying its employees very well.
Ten of the 14 outperformed the market in a big way, one (Moog) trailed it slightly, and three (Delta, Toast, and Procore) lagged it sharply.
Some of these stocks do trade at nosebleed valuations — particularly Nvidia — but I’m adding them to the This Is Fine model portfolio to track for the next 12 months to see how they perform against the overall market.
Though this isn’t an official recommendation to go out and buy all 14 stocks, I tend to think that if you buy this basket of stocks and hold them for the next decade, you’re likely to strongly outperform the market — just as they have for the past decade.
Interesting idea. I use Glassdoor regularly to get nuggets about a company. That said I wonder if using this as a signpost is looking in the rear view mirror. Employee perks, bonuses, and general work environment are all better when things are going well.
When things start going badly those things get cut. I can remember when our cookie/snack cabinet and free fountain soda along with Friday patio beer parties along with other things were canceled at a previous employer who started experiencing financial stress. Also when things get tough extra burdens are placed on existing employees who are expected to do more with less. All of that leads to dissatisfaction in real time.
So the survey likely has a lot to do with what happened last year and may tell you less about what will happen going forward. Rate of change seems most interesting to me in these lists. If last years darlings suddenly see an influx of dissatisfied reviews in real time it might be a negative signal that is more relevant. The same holds true for laggards who are seeing things turn up, but I think improving satisfaction at a sweat shop teetering on bankruptcy is going to take longer to be reflected in employee perception.