Amazon (NASDAQ:AMZN) CEO Jeff Bezos is currently embroiled in a labor dispute with the employees of the Washington Post over higher pay. President Donald Trump is loving every minute of it. And while founder-led companies like Amazon tend to face extra scrutiny, the reward for owning these stocks over the long haul far outweighs the negatives.
According to a study of the S&P 500 by Mitt Romney’s old firm, Bain & Co., founder-led companies where the founder is still very involved with day-to-day operations delivered investment returns three times greater than the rest over a 25-year period.
“We found that the companies most successful at maintaining profitable growth over the long term were disproportionately companies where the founder was still running the business,” stated Chris Zook, Bain & Company.
At the end of the day, long-term success comes from superior capital allocation decisions by CEOs. These seven founder-led companies do it better than most.
Founder-Led Companies to Own: Interactive Brokers (IBKR)
“Investment by passive investors, and by others who do not use our platform, tends to cause a run up in our share price. This makes it more difficult for our clients to purchase our shares,” Peterffy states on IBKR’s homepage. “You may be considering investing in IBKR. We would like to ask you not to buy our shares unless you become an active user of our platform prior to doing so.”
It is this kind of forthrightness that makes founder-led companies like Interactive Brokers such a breath of fresh air.
Interactive Brokers provides its 517,000 client accounts with access to 120 markets in 26 countries. If you’re truly an investor in individual stocks, Interactive Brokers is the home for you.
I can’t claim to have used the brokerage’s services but several portfolio managers over the years have recommended I do so.
Profitable and growing, IBKR has delivered a five-year annualized total return of 34%.
Founder-Led Companies to Own: Zayo Group (ZAYO)
Zayo Group Holdings (NYSE:ZAYO) co-founder and CEO Dan Caruso has led the company since its creation in 2007. If you bought IPO shares when it went public in October 2014 and are still holding them, you’re sitting on a 19% annualized total return.
Zayo Group provides companies with the communications infrastructure to successfully operate their businesses. In San Antonio and Austin, for example, it has a 20-year contract to connect 300 cellphone towers by laying fiber optic cable in both areas. To date, it has built an international network of fiber optic cable that runs for 11.5 million miles.
Delivering annualized revenue of $2.6 billion and 50% adjusted EBITDA margins, Zayo Group’s had 34 consecutive quarters of sequential growth.
With bandwidth and data usage expected to increase by 20% annually through 2021, the future prospects for the company look healthy indeed.
Founder-Led Companies to Own: BlackRock (BLK)
Some people don’t like BlackRock, Inc. (NYSE:BLK) CEO Larry Fink’s belief that S&P 500 companies should serve a social purpose, in stark contrast to economist Milton Friedman’s belief that the sole responsibility of businesses is to increase profits.
“Society is demanding that companies, both public and private, serve a social purpose,” Fink wrote in his letter to CEOs earlier this year. “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Larry Fink founded BlackRock in 1988 creating the world’s largest asset manager with over $6 trillion under management.
He believes that the long-term delivery of shareholder value is accomplished by having a sense of purpose, not just a thirst for profits.
Winning, in his mind, isn’t fighting the Chinese or Canadians on trade, but rather delivering for all stakeholders, not just shareholders.
Since BlackRock’s IPO in October 1999 at $14, BLK’s achieved an annualized return of 23%, not including dividends, making it the best performing stock from the 69 financial services companies in the S&P 500.
Being good is good business.
Founder-Led Companies to Own: FedEx (FDX)
Is it just me or does FedEx (NYSE:FDX) CEO and founder Fred Smith seem to have been around forever? Smith founded the company as Federal Express in 1971; it changed the name to FedEx in 1994, in part to reflect its international stature, but also to make it easier for overseas customers to pronounce its name.
“FedEx is a lot easier to say around the world,” stated FedEx’s former senior vice president of corporate marketing in 2013.
Back in 2011, I recommended investors buy FedEx and drop United Parcel Service (NYSE:UPS) for the simple reason that UPS stock was flying high while FDX was trading at a two-year low.
“The thing that separates the two for me is Fred Smith, CEO of FedEx. He founded the company in 1971 and has been on the board ever since…” I wrote on Sept. 28, 2011. “He is Mr. FedEx.”
Since then, FDX has generated a cumulative total return of 281%, compared to 118% for UPS. Going forward, I don’t see that changing.
Founder-Led Companies to Own: RealPage (RP)
Prior to starting RealPage (NASDAQ:RP) in 1998, CEO Stephen Winn worked as an executive for several Thomson Reuters Corp (NYSE:TRI) subsidiaries. Today, Winn owns 22.7% of the company and is said to be worth $1.5 billion.
RealPage is best known for its on-demand software solutions for multifamily residential real estate investors. Its 12,400 clients include the ten largest multifamily property management companies in the U.S.
Businesses that make or save people money are always in demand. With the rental real estate market expected to continue to grow, RealPage’s cloud computing solutions will continue to be attractive to residential property owners.
I found a negative Glassdoor review of Steve Winn and RealPage from 2015 that would have lost you a lot of money if you listened to the advice of this obviously disgruntled employee.
“As long as Steve Winn is CEO, the stock will never go up,” wrote the anonymous sales rep on April 1, 2015. “As long as the current board of directors is in place, Steve Winn will stay in control. Why? Because the board is friends with Steve and Steve won’t fire anyone that makes him laugh.”
Guess what? RP stock is up 197% since these comments were made on April Fools Day, 2015.
Don’t know if they were meant as a joke. Either way, RP stock has been on a roll since early 2016 and looks to continue that roll in 2018 and beyond.
Founder-Led Companies to Own: Netflix (NFLX)
Recently the S&P 500 got hammered for four consecutive days of losses due to investor worries about a China-U.S. trade war.
Not losing ground during that time was Netflix (NASDAQ:NFLX) which is up 103% year to date through June 18 and hasn’t had a down year since 2014.
Reed Hastings has built an unbelievable business, one that I thought Disney (NYSE:DIS) should have bought in 2016, long before Bob Iger decided to launch his own video streaming services.
“Bob Iger is looking for the ideal person to replace himself at the head of the Disney table. Reed Hastings would be a logical candidate,” I wrote Nov. 15, 2016. “He’s built a huge business from scratch, understands the entertainment business and the idea of convergence, and he knows how Disney operates considering Netflix’s existing pay-TV deal with the company.”
In hindsight, we know that didn’t happen, with Disney actually pulling its content from Netflix.
At the time of that article, I argued that Hastings was one reason NFLX was worth its insane valuation. Up 244% since, I’m not surprised Goldman Sachs just raised its 12-month price target to $490.
Not sure why they didn’t just go with $500, but you get the point. It’s a stock with legs as long as Hastings is in the top job.
Founder-Led Companies to Own: Amazon.com (AMZN)
It’s hard to bet against Jeff Bezos and Amazon. Even Donald Trump wouldn’t be dumb enough to short Amazon stock despite the president’s hatred of the man.
Listen, Bezos is far from perfect, but he didn’t become the world’s richest person by luck or a silver spoon planted early in life. No, Jeff Bezos figured out what consumers wanted and gave it to them over and over and over again.
His obsession with customer service is something I touched on in April 2017.
“There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great,” wrote Bezos in Amazon’s 2016 letter to shareholders. “Staying in Day 1 requires you to experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight. A customer-obsessed culture best creates the conditions where all of that can happen.”
I’m not sure how or why Bezos became obsessed by customer satisfaction in the early 1990s but it’s been the key to the e-commerce giant’s success.
When it comes to founder-led companies you must own, Amazon is number one in my opinion. After all, he’s still only 54 years old, with plenty of gas left in the tank.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.