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Software industry

Second Best is Not Always Second Rate

Strategic Insights

— 2 min read

When analyzing the performances of large companies, it's tempting to assume that being the largest in the sector means being the best. However, this assumption can be deceiving. As it turns out, the second-largest company in a particular industry often outperforms its larger counterpart due to factors such as strategic decision-making, management effectiveness, and adaptability to changing market conditions.

Key Takeaways:

  • In a comparison of the performances of Wal-Mart(NYSE:WMT) and Target(NYSE:TGT), Target's market capitalization is still nearly six times smaller than Wal-Mart's, yet Target has outperformed Wal-Mart due to its strategic decision to expand into more desirable locations and offer a wider range of products.
  • Chevron(NYSE:CVX) outperformed Exxon Mobil(NYSE:XOM) by avoiding the domestic natural gas market, which declined significantly after Exxon's $41 billion purchase of XTO Energy.
  • Dow Chemical(NYSE:DOW) outperformed DuPont(NYSE:DD) due to its focus on agribusiness and strategic actions during the economic recovery period.
  • JPMorgan(NYSE:JPM) underperformed Wells Fargo(NYSE:WFC) despite JPMorgan's CEO, Jamie Dimon, being considered one of the savviest corporate managers in the world.
  • Yum! Brands(NYSE:YUM) outperformed McDonald's(NYSE:MCD) due to its focus on global growth and higher levels of earnings growth.
  • IBM(NYSE:IBM) outperformed Microsoft(NYSE:MSFT) due to its focus on the enterprise information technology business and shedding its personal computer ownership.
  • Dell(NYSE:DELL) outperformed Hewlett-Packard(NYSE:HPQ) due to its effective management and strategic decisions, contrasting with Hewlett-Packard's poor management and ill-timed acquisitions.

Statistics:

  • Since the market bottom on March 9, 2009, Target's market capitalization has increased by 89%, while Wal-Mart's has increased by 44%.
  • Chevron's stock price has increased by 23%, while Exxon Mobil's has decreased by 10% since the market bottom.
  • Dow Chemical's P/E ratio is 11, while DuPont's P/E ratio is 13.
  • IBM and Microsoft have nearly equal market capitalizations.

Sources:

  • Stockpickr, "3 IPO Bargain Stocks Ready to Rebound" (http://stockpickr.com/3-ipo-bargain-stocks-ready-rebound.html)
  • Stockpickr, "7 Top Stocks Favored by Maverick Mutual Funds" (http://stockpickr.com/thestreet-portfolios-2/portfolio/7-top-stocks-favored-by-maverick-mutual-funds/)
  • Alembic Global Advisors, "Dow shares experience strong outperformance for 2-3 years post a recession" (http://www.alembicglobal.com/assets/files/company%20reports/032910%20dow.pdf)
  • SAC Capital, "Steven Cohen's Portfolio" (http://stockpickr.com/pro/portfolio/steven-cohen-sac-capital/)
  • Warren Buffett's Portfolio, "6 New Investments" (http://stockpickr.com/thestreet-portfolios-2/portfolio/warren-buffett-s-6-new-investments/)
  • John Paulson's Portfolio, "Hewlett-Packard" (http://stockpickr.com/pro/portfolio/john-paulson/)

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