5 Companies Where Happy Employees Make for Wonderful Stocks

by Will Ashworth | August 15, 2014 10:22 am

Alex Edmans is an associate professor of finance at The Wharton School of the University of  Pennsylvania. In 2012, Edmans published[1] a paper demonstrating that job satisfaction has a lot to do with the value of a firm and future stock returns. In essence, happy employees make for wonderful stocks.

Between 1984 and 2011, the “100 Best Companies to Work For in America” delivered annual stock returns that were 2.3% to 3.8% better than their peers.

Edmans’ research led him to three main conclusions:

1. Job satisfaction causes stronger corporate performance
2. Corporations that are socially responsible often achieve better stock returns
3. Intangible assets — such as satisfied employees — rarely affect stock prices until tangibles valued by the market such as earnings announcements appear on the scene.

Some people tend to dismiss lists like the one Fortune publishes[2] annually, but that would be a mistake. Edmans’ results clearly demonstrate there is a causal relationship between job satisfaction and higher stock returns.

Edmans points out in his paper that about one-third of the list turns over every year. Simply picking the top five companies on the list for 2014 isn’t going to guarantee success. Instead, we need to find five companies who’ve consistently made the list over an extended period of time and not just one year.

Who are the top five companies where happy employees equal wonderful stocks? Read on to find out which companies are making their employees — and their investors — happy.

Best Company # 1 — Google (GOOG)

No surprise here. Google (GOOG[3]) has been the No. 1 company to work for[4] since 2012.

The employee perks are legendary; 95% of employees feel their compensation is fair and equitable. Just as important to employees is the company’s willingness to give back to the community. In 2012, it gave $100 million in grants as well as providing $1 billion in free or discounted products to nonprofits around the globe.

So, how has GOOG stock performed? It’s five-year annualized total return[5] through August 11 is 20.5% — four percentage points better than the S&P 500.

Best Company # 2 — Camden Property Trust (CPT)

Camden Property Trust (CPT[6]) owns, acquires, develops and manages multifamily residential[7] apartment communities. At the end of June it owned and operated 169 properties across the US containing almost 60,000 apartments.

With a corporate motto to “Have Fun” and a pension for hugging, it’s no wonder that 94% of the employees love going to work every day. And the more you enjoy going to work, the happier you are there, and it becomes a cycle. If you’re a stick in the mud, this isn’t the company for you.

How’s CPT stock performed? While it hasn’t outperformed its Residential REIT peers over the past five years, it has beaten the index, up 19.4%[8] compared to 16% for the S&P 500.

Best Company # 3 — NetApp (NTAP)

Not being a tech guru let me simply state that NetApp (NTAP[9]) specializes in products and solutions for data storage.

Big data’s an issue for all companies big or small, and in general NetApp has done well meeting the data storage needs of its customers. With $6.3 billion in annual revenue, it started paying a quarterly dividend[10] of 15 cents last July. Most importantly, NTAP gas made the Fortune list for 12 consecutive years[11].

NTAP stock hasn’t performed so well in 2014, staying mostly flat for the year-to-date. And that’s after a 5% surge after earnings. But considering that NTAP has been beaten by the S&P 500[12] in each of the last four years, reversion to the mean should be settling in soon enough. Indeed, its economic performance seems to warrant a better fate.

Best Company # 4 — Qualcomm (QCOM)

First of all, who wouldn’t want to work in wonderful San Diego? A perfect climate away from the hustle and bustle of Silicon Valley, Qualcomm (QCOM[13]) has built a company that makes a lot of money off the global push to mobile communication.

Making a number of big acquisitions in the past few years, QCOM has been able to make the transition to mobile virtually seamless, something most companies stumble with. But Qualcomm knows how to keep its employees as happy as its customers: QCOM covers 100% of employees’ and their dependents’ medical premiums[14].

Like NTAP, QCOMs has had a hard time keeping up with the S&P 500 lately, but at least it has outperformed its communication equipment peers[15]. Financially, its business is solid as a rock, and will do just fine in the long term.

Best Company # 5 — NuStar Energy L.P. (NS)

NuStar Energy (NS[16]) operates more than 8,000 miles of pipeline and 84 terminals that store crude oil, refined products and specialty liquids. According to InvestorPlace contributor Aaron Levitt, NS is finally coming out of the funk that has plagued it for years[17], and that’s great news for its long-suffering investors.

While business hasn’t always been great, NuStar done everything it could to maintain a workplace full of engaged and happy employees. That enthusiasm will typically translate into a higher quality of work done for the company.

Prior to this year, NS stock has been something of a mitigated disaster. However, in 2014 it’s up 26% year-to-date[18], more than 7 percentage points greater than its midstream oil & gas peers and 20 percentage points better than the S&P 500. Even better, as Aaron points out, it currently yields almost 7%. Good things come to those who wait.

Bottom Line

Between August 11, 2009, and August 11, 2014, the five publicly traded companies from Fortune’s list achieved a cumulative total return of 133% — 18 percentage points greater than the SPDR S&P 500 (SPY[19]). Granted, much of it was as a result of Google, which is up 154% over this period, but nonetheless it portends great things to come in the future.

Especially, if you believe, as I do, in Alex Edmans’ research findings.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2014/08/happy-employees-goog-qcom/

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