In recent weeks, Apple (Nasdaq: AAPL) has firmly established its market capitalisation leadership among the companies of the US S&P 500. It has surged past ExxonMobil (NYSE: XOM) into the No. 1 position by a considerable margin. Surprisingly, the crowning of a new market cap leader is far more unusual than you might think.
There have been only 11 distinct leaders since 1926, which makes the emergence of a new one about as frequent as an American war (we've had around 10 of those since then, by my count). What can we learn from these remarkable companies that have been able to win admittance to this exclusive club? And can those lessons help us identify the visionary companies of tomorrow?
Mt. Olympus for large caps
Below are the 11 market cap leaders of the past 86 years:
|Company||Industry||Market Cap ($US)|
|ExxonMobil||Major integrated oil and gas||$410b|
|IBM||Diversified computer systems||$233b|
|Wal-Mart||Discount, variety stores||$204b|
|General Electric||Diversified machinery||$200b|
|Cisco||Networking and communications||$106b|
|General Motors||Auto manufacture||$41b|
List of companies from S&P Capital IQ. Industry and market cap info from Yahoo! Finance.
And here are three quick takeaways from considering the companies in this group:
1. Market cap leaders transform our society. In Built to Last, Jim Collins and Jerry Porras argue that great companies "have woven themselves into the very fabric of society." This is clearly true of each of the firms on this list. General Electric was a pioneer in the field of electricity, while General Motors was one of the early producers of automobiles, and both those developments greatly transformed American society. The next market cap leader — and one will replace Apple — will most likely be a company that is changing our world in big, meaningful ways. Will that company be a leader in search? In social networking?
2. Market cap leaders endure. One of the most fascinating things about this pantheon of companies is that all of them remain extremely relevant today. Most of these companies have been around for a very long time, and I suspect all of them will still be going strong over the long term. Clearly, there must be more to becoming a market cap leader than just being in the right place at the right time. These companies have built effective organizations that allow them to grow and respond to changing market conditions. It would not surprise me at all if ExxonMobil, for example, returned to market cap leadership sometime soon and held onto it for another decade or so.
3. Market cap leaders have great cultures. It's striking to me how many of these companies have strong, distinct cultures. Apple, of course, works very hard to preserve the start-up ethos in everything it does. GE, on the other hand, is all about learning, excellence, and sharp elbows. And throughout much of its history, IBM has been the prototypical corporate culture that sets itself apart from its competitors. In a recent tweet, Motley Fool CEO Tom Gardner said that "most investors don't care about internal culture … which is why most investors lose to the market."
So who will be the next market cap leader after Apple? Apart from ExxonMobil returning to the No. 1 slot, I think the next leader will have all three attributes from above. And that company may not even seem likely at the moment. How many of you honestly felt Apple, with its market cap of $36 billion in August 2005, would become market cap leader a mere seven years later?
I wouldn't be surprised to see Google as the next market cap leader someday. It's a company with a great culture that is transforming our world in many interesting ways. More controversially, I could see Facebook becoming the dominant company in a decade or so. Its incredible network provides it with possibilities that challenge the imagination at this point. I believe the next market cap leader is in our midst, though we may not recognize it until it becomes obvious.
The Australian market is dominated by the resource, financial and retail majors. BHP Billiton Limited (ASX: BHP) is the largest on the ASX by almost 50% more than its nearest competitor, Commonwealth Bank of Australia (ASX: CBA). The other three major banks – Westpac Banking Corporation (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Limited (ASX: NAB) – round out the top five. If the resources boom continues, I think it's unlikely that BHP will be challenged any time soon for ASX leadership, especially given its global reach. However, if the US companies above are any indication, there's a fair chance the next leader after BHP will be one who changes the way we live, work or play.
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The Motley Fool's purpose is to educate, amuse and enrich investors.This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
A version of this article, written by John Reeves, was originally published at fool.com