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Fortune Staff

The 25th Fortune World’s Most Admired Companies list suggests that tech giants’ peers respect them as much as ever.

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Sharp | 2023 World's Most Admired Companies

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Sharp

Sharp | 2023 World's Most Admired Companies | Fortune

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 Well, look, growth at scale you know with 29,000 stores in 78 countries around the world, it means we have to sharpen our focus on the key priorities. And that's why we've set three strategic priorities. One is accelerating our growth in our targeted long-term markets of the US and China. Second is expanding the reach globally of our CPG and food services business in a global coffee alliance with Nestlé. And the third is sharpening our focus on shareholder value returns. And so we've been-- we've narrowed down the focus. We've streamlined the company. We're now focused on how we're accelerating the pace of innovation. And all of that is accruing value to the agenda, the growth agenda at scale. 

Insights: Starbucks CEO: "We Have to Sharpen Our Focus on the Key Priorities"

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Kevin Johnson discusses the company's three-pronged plan.

Starbucks CEO: "Focus on the Key Priorities"

Kevin Johnson discusses the company's three-pronged plan. (October 2018)

Well, look, growth of scale, you know, With 29,000 stores and 78 countries around the world, it means we have to sharpen our focus on the key priorities. And that's why we've set three strategic priorities. One is accelerating our growth and are targeted long term markets of the U. S. And China. Second is expanding the reach globally of our CPG and Food Service is business in a global coffee alliance with Nestle, and the third is sharpening our focus on shareholder value returns. And so we've been we've narrowed down the focus we've streamlined the company were now focused on how we're accelerating the pace of innovation. And all of that is accruing value thio to the agenda, the growth agenda at scale.

[ MUSIC ] Savita Subramanian tell us about your greatest opportunities and greatest risks you see for 2020? Well, I'll start with the risks and what worries me a little bit is that we've seen these Flash crashes popping up everywhere. So we saw this spike in. In the repo rate just a month ago we've seen big moves in different styles like growth outperformed value and then value outperformed growth and it was like a five standard deviation event It feels like the market is getting more fragile. And what worries me about the S & P 500 and US large cap stocks which are normally the most liquid stocks in the world. A Larger and larger percentage of these companies are owned by passive investors or by quant funds, not your traditional fundamental investor. So I worry that if there is some sort of mass Exodus out of Equities, the liquidity profile of the s & p 500 could look very different from what it has looked like in prior bear markets. So that I think is a risk that that's kind of under the radar And is worth thinking about from an opportunity perspective. My favorite sector for 2020 is US Financials. And again, it's not for the reasons that we normally think of buying financials. We don't anticipate a huge recovery in the economic cycle, we don't anticipate a credit expansion cycle, but Financials, to me, looks like the new high quality Dividend yield sector. And the reason I say this is little known fact the shareholder buyback plus dividend yield of financials is the highest of all 11 sectors. These companies are putting cash back in the hands of their investors. And this is different from what we saw ten years ago and this is very different from what we're seeing other companies do. Other companies are dialing down their cash return story. Meanwhile financials are dialing it up. Financials also happens to be the most hated sector in the equity market by both institutional long only and hedge fund investors. So I think it's really a beaten down sector that's pricing in a lot of risks around political changes. Where we don't necessarily see the likelihood of more regulation. It's a sector that just looks more high- quality than it has in a very long time. Leverage ratio are a shadow of their former selves back in 2007. So it's a sector that I think has transformed into a better hedge against the downturn than what it was ten years ago. Josh Brown greatest risks and greatest opportunities for 2020. Okay, let's start with greatest opportunity. I genuinely believe that most of the market is expecting some extreme move out of rates. They either think this whole thing is a fake out and there's going to be this bout of inflation or bond vigilantes overseas That triggers something where all of a sudden, everyone will be caught off sides and fixed income and rates have to scream higher. You hear a lot of that, you also hear a lot of rates are headed to zero it's a matter of time. Look around the world we won't be immune to those dis inflationary pressures. What if it's just more of this as far as the eye can see? That is a possibility. I have a book this thick. I haven't really read it, I pretend to read it. But it's Richard seller history of interest rates. There have been hundred year spans where there wasn't much volatility and interest rate. So I know that makes for boring television perhaps but it's entirely possible that just like this year, people with extreme opinions will lose and people that are doing asset allocation will win. And so that's my opportunity, the opportunity to be seen and not be one of these lunatics that thinks we're going to have one Cataclysm or another The biggest risk is you. You are your own biggest risk. None of the macro themes we're talking talking about. It's not security selection or you're gonna pick the wrong ETF, you are the risk, you are the risk. Last year we had a 16 % draw down, in the winter we followed up with a 20 % draw down How did you act? What did you do? Did you log in to betterment and tone the dial down? Did you call your broker to get me out? If you did, then you recognize that you are the one doing the things that Will have the bigger impact on your portfolio. It's not the Fed, it's not Trump, it's you. So the minute you get that through your head, I think you start thinking about the portfolio process differently and hopefully become a better investor over time. Thanks, Josh. Kareena Funk, what are your greatest opportunities and greatest risks for 2020? Let's see, risks is a short discussion because there are a lot of risks. Whether it's interest rates, geopolitical, trade wars, and there's a whole lot out there that we can't predict, and we can't control. Frankly, I worry about what I can control. Which is going out there, doing the research and finding great companies that can deliver compelling customer value propositions day in and day out. These companies that can outperform during a bull market that have outperformed in very choppy markets. I'll just mention some themes that we're excited about in our portfolio. Healthcare has been what, the second- worst performing sector generally in the past 12 months, but yet some companies within there, very very strong double- digits, so tools, diagnostics, companies that are helping the drug discovery and move into this trend from small molecule chemistry based drugs To large molecule and also medical devices, just devices that help people live longer save lives and improve lives. Then in tech there's the, I mean, clearly a lot of valuation and fangs has played out but there's a lot more legs in digital transformation, whether it's transforming Business as usual processes moving that to the cloud and just modernization and then also industries that have under invested in technology that are ripe for disruption disruption, whether its construction infrastructure Manufacturing, there's a lot of opportunity there. And then there's also the massive trend of data everywhere on many devices in every location. So companies that are leveraged to that build out 5G, and some of the silicon that that are really precise for those kinds of workloads, those are growth opportunities. And then finally, I'll mention this trend of resource constraints. That's not going away. You know, the fact that we have to learn to as you know, some companies that we invest in, do more with less either internally, resource optimization. It's all about decreasing your inputs, but increasing your yield, whether you do that for yourself, or you do that for your customers that's compelling day in and day out. And all of these secular trends that I just mentioned, are going to happen whether we're at a peak or a trough. Or wherever we are in terms of valuations, these are growth opportunities. Thanks, Katrina. Rob Sharps, what are your greatest opportunities and greatest risks for 2018? That all start on the opportunity side just by making the observation that it's interesting that this roundtable seems to be as positive as it is with regard to the near term outlook, right? There was a sentiment poll cited last week. That actually had the fewest number of bulls in the history of the sediment poll. So I think the opportunity for me is, PMI's are bottoming. There still is a fair bit of scepticism around the durability of the economic cycle and the ability of earnings to resume growth next year. So I think to lean away from safety and lean into cyclicality. I like industrials. In the US I think there are a number of high quality industrials name like Union Pacific or UPS. Or you can get double digit returns. If you want to take on a little more rescue, you could take on a name like United Airlines or even GE where there it's messy right now. They're stabilizing the balance sheet She. But you have a new CEO in there with a proven track record that, you know, kind of ultimately I think can build on a number of strong underlying franchises with NGE. In terms of risks mine is around the election. And I do think that there is in outcome from the election where political leadership implements some anti business policy. That raises cost that increases the regulatory burden and ultimately will lead to a negative productivity shock. I think it could be particularly acute in sectors like financial services or energy. And I think those two sectors are sectors that are really influential and really important to the economy as a whole. So that would be something that I'm gonna watch for and something that I'm concerned about Thanks Rob, Angelou Strange, tell me the biggest risk and biggest opportunities you're seeing for next year. Yeah, I think the biggest opportunity is to create companies that will serve 50 % of the US and the more than 2 billion people worldwide that are underbanked, or unbanked entirely. And here's why. It used to be, and right now it's very difficult to start a financial services company, it used to be difficult to start an internet company. And along came Amazon Web Services and they offered storage, compute all of these things as a service and so went from being millions of dollars and long time to anybody can start a company with their laptop and a credit card. Now in financial services, I often state that the Amazon Web Services era is coming to financial services. And what that means is it's not just one company, but there are several different infrastructure companies that will do things like partner with banks and package up the licensing process and some regulatory and all the different payment type networks that you need such that instead of spending two years and millions of dollars and forming tons of partnerships, you can get all of that as a service and get going. So, what does that do? It makes it faster and cheaper to start a company and what it'll do is similar to the Internet. It will unleash all of these experiments. Some of which will become large large companies of the future. We're also seeing that's enabling people from entirely different social economic demographics, probably who understand these problems from a much deeper product perspective to start companies. There's already great founders in that space and there's gonna be many many more. [ BLANK_AUDIO ]

Biggest Investing Opportunities and Risks for 2020

Finance

According to Fortune’s annual Investor Roundtable panelists.

[ MUSIC ] What I was gonna say is we've been talking quite a bit about our conversation has been very domestically focused. But are people seeing opportunities in markets outside of the states right now. The story for a long time has been that really this is the only place where you're going to get reliable stock price growth and reliable earnings. But is that Could that be changing? Could we see that change in the next 12 months? Well, it's been a 50 % performance for US stocks versus international stocks in the cycle. So for people that said you don't need International, they look really smart. That's absolutely been true. And you can look at that at any time frame you want from one year to five years to 10 years. It actually gets worse and worse as the time horizon. So a lot of this is currency driven, a lot of that is political, a lot of that is Central Bank driven. It's really tough to say when that's gonna switch. I know some people look at technicals and they try to say, it's one market breaking out relative to another. If you were playing that game right now, emerging markets look pretty good ->> Yep. And then international markets would still be a toss up. So look at that and try to decide fundamentally, when are people gonna get excited about? European stock trading 12 times earnings. I don't know when that will be because you would have thought it would happen at 14 times earnings, and it hasn't. I think the problem with looking at international broadly is there are such deep structural problems in places like Europe and Japan and there are some good things going in the Japanese market in terms of better corporate governance, better capital management etc. But you don't have a lot of innovation and you don't have kind of position to, [ CROSSTALK ] As I said- GDP growth. You're right, the industry differences are bigger. Much bigger, yeah. The tech sector is miniscule in many of these countries. And if you're saying that's what's driving the S & P Then the out- performance makes perfect sense. But if you look at the under- performing sectors, financials and energy they are very dominant in European industries. So I do think emerging markets is a good place to look. And there are a lot of emerging markets that have structurally improved and there are a lot of really good companies in a number of different emerging markets. From a from a private market perspective, these structural challenges actually present opportunity. So if you just look at financial services been spending a lot of time in Latin America. So on the one hand, you could look and say well credit card penetration, it's like 14 or 15 % in a lot of countries and it hasn't done anything for a while. But smartphone penetration has gone from that level up to. 80 % so structurally Yes, we could wait for bank branches to be established all around and serve the population or everybody's now got their smartphones. That's how financial services are gonna be provided. And that's exactly what's happening And I think what's interesting is that with the phone and all the data provided, you can bypass things that would seem like structural impossibilities like no credit bureaus and no branches. You've all the data that you could possibly need on the phone and the delivery mechanism So there's clever companies that are starting with small dollar lending using data signals like how up to date is your Android operating system you know, do you charge your phone at night and a whole variety of other signals and they're becoming the credit bureau and the bank at the same time. To your point. Like if you bought The Brazilian ETF ten years ago, you have no return to show for it. But if you bought Mercado Libre you're up 1, 000 % and change, which is the payment processors slash e commerce play of Brazil. So that's a really good point that you're making. So there are massive secular trends that are opportunities for any global company. True. You mentioned basically financial inclusion, right and turns out it's a really good business proposition to get the 1. 5, 1. 8 billion [ UNKNOWN ] people. ->> Absolutely. In as customers. You mentioned to us in diagnostic companies in China a lot of. Those kinds of companies are growing like a weed providing the highest quality reagents, cell cultures for this move to biologics. Also things like air emissions monitoring, clean water, again, we're not gonna need any less of that in the future. [ BLANK_AUDIO ]

International Investment Opportunities for the Next Year

Is the U.S. still the only place seeing reliable stock price growth?

[ MUSIC ] I actually think having the concept of a tech sector is somewhat outdated, right, because now there's Airbnb. Airbnb, is it a tech company? No, it's a hospitality company. And Amazon is a grocery store. It's in transportation, right, and we're seeing them in banks. And so I think we're still figuring out, how are these earlier companies going to be valued in the public markets? Like if we look at insurance, right? One In ten companies in the fortune 500 as an insurance company, every single one of these was started before World War Two. [ LAUGH ] Opportunity for a new company, right? My answer is still using software for- Fine and they're asking you for it. They're asking you 40 questions on a piece of paper to ensure your house like that doesn't make any sense. So do you think the incumbents will digitize or do you think that they'll be Disrupted. They're going both ways, both ways. And I- Tell us some examples. I think it's great. We're already seeing, you asked about the impact of the newer companies in these sectors, and even though their user basis might be relatively small, they're forcing the incumbents to react faster. So we've moved to a different industry, Robinhood free stock trading, right? There are up to about seven million users, which is a small piece in the grand scheme of the pie. Then just recently Schwab and TD both cut their commissions down to zero. Time added more new bank accounts than tasted last year. The larger banks are starting to offer free checking that hasn't really existed unless you can keep thousands of dollars in your bank. So it's going both- Do investors prosper as a result of that though, because it was a massive market loss for the publicly traded brokers. Robin Hood itself does not trade publicly. I doubt very highly this stock would have been up on the news that Charles Schwab was not only cutting commissions to zero, but getting into fractional share ownership, which is something that Robin has done really well. So the question is, are there situations where the challengers are almost too good? And they come on too strong and they force a reaction from the incumbents because we could talk about robo advisors, and then Vanguard and Schwab's response like. Do investors benefit when the disruption is too fast and everyone goes all in on free services? [ CROSSTALK ] Short- term, long- term. So let's take something like overdraft fee. s $ 34 billion last year paid by consumers overdraft. Nobody likes overdraft, but it's a solid line item on many of the banks. And so I think it's just a matter of time. Before companies have to figure out different revenue models because the challenges are coming up and offering free, so do they figure that out now, or do they figure it out later? It's this innovators dilemma. I think it's sort of forcing to think about these longer term business models faster. Do you think the reputational benefits of building that kind of goodwill with a customer you know, to me that feels like a long term investment This is gonna hurt my bottom line this year, but five years from now, if people love. My company because I cut their fees, maybe I'm making marginal- It might have just been reputation but now customers have options, which I think is great. Yes reputational, but you're not gonna do it fine. I'm gonna switch. The market's also letting companies get away with this to some extent now, right? If you look at what happened with Disney when they went public with With their streaming service and the investment that they're gonna make. The out year earnings estimates for the course of the last several years or over the course of the next several years went down but the stock broke out of the trading range that it had been in for quite some time because the market said okay, they're taking a much longer time horizon and trying to capitalize [ CROSSTALK ] Cuz we saw the same thing with Walmart, the [ UNKNOWN ] acquisition of Jet It's such a ludicrous multiple that but the people that cover Wal- Mart are not technologists. Yeah. They're literally people that walk up and down the aisles and stores, to see if the Linoleum is cracked. So when that news came out, everyone said Walmart was crazy. The stock exploded higher and has not yet looked back. I don't think they're making any money on that. It's not the point. The point is they are demonstrating to the street and their investors that they want to be in the game the century. [ CROSSTALK ] Yeah, Microsoft. Safe, totally true. And that's one point about technology disruption. It's not like one and done and disruption and new technology enablement is really enabling new business models. So it doesn't set each company out on a collision course or on success or failure. Mm- hm. You talked about going to zero commissions, another company that sort of had a race to zero into it. Yeah. $ 0 for filing your taxes, you think that's a race to the bottom, but if they hadn't already done the digital transformation move to the cloud, if that was just sitting on a desktop, you wouldn't have QuickBooks lie. The ability to actually connect In real time with a live person to finish your taxes and I don't think we thought of that.

Investor Roundtable 2020: Incumbents v. Disrupters in Finance

Will startups in financial services make the markets choppy for bigger rivals?

Sharp

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World's Most Admired Companies
As of 2/1/2023

Sharp

Company Information

World's Most Admired CompaniesAs of 2/1/2023

World's Most Admired Companies
As of 2/1/2023