A couple days ago we provided a quick tally of companies we’ve talked about in the blog, separating them into "good" and "not so good" categories. Our friend Mark Graban at the Lean Blog commented back wondering about the stock performance of each group. He had previously looked at a similar situation when he analyzed the stock performance of companies that had won the Shingo Prize. Let’s just say they had less-than-stellar results.
I actually had looked at the stock performance of both groups, and wasn’t impressed. In 2006 the average stock price return of the "good" companies was just over 10%, and the average return on the "not so good" was 2%. Not necessarily a statistically relevant difference, and in any case they both returned less than the Dow. However there are several issues impacting this analysis:
- Only a subset of the companies in each category are publicly traded. As Bill often points out, private companies have a better chance of achieving real lean as they can focus on the long term without being beholdened to traditional short-term minded shareholders.
- In some cases a company on the "not so good" list was there because of a poor decision that had yet to impact the company. For example, NCR and Whirlpool are laying off tens of thousands of years of knowledge just so they can hire back the same number of people with only weeks of knowledge… for a couple bucks cheaper at an offshore facility. However both companies are currently profitable, and Wall Street is rewarding the short-term cost cutting (at least by traditional financial standards) without taking into account the long-term indirect financial impact.
- In a couple cases we have individual plants that are either making positive or negative lean-oriented decisions, while their parent corporation is going in the opposite direction. The stock price wouldn’t immediately show this.
The bottom line is we can’t use that particular list of companies as a "lean investment portfolio." But that doesn’t mean there can’t be one. If I had to pick some publicly-traded companies that have a solid company-wide lean program, I’d probably choose the following. I’ve included their 2006 return, which is pure stock price and doesn’t include dividend yield and such.
- Toyota (TM) — 26.9%
- Danaher (DHR) — 29.1%
- Parker-Hannifin (PH) — 16.4%
- Caterpillar (CAT) — 6.0%
- Cummins (CMI) — 30.8%
- Wabtech (WAB) — 12.7%
- Boeing (BA) — 26.4%
- Raytheon (RTN) — 31.9%
Almost all of those beat the Dow in 2006. But there are still some issues… for example, Boeing is reaping the benefits of Airbus incompetence. Perhaps that is a reflection on lean in direct and indirect ways, but there are obviously market forces at work (not to mention shareholder perception, etc.) that have nothing to do with lean.
Any thoughts? Companies that should be added or removed, or additional criteria? Companies committed to lean that aren’t in manufacturing?
And I guess I should give some disclosure and CYA: I do own shares in about half of those companies, however I am by no means a professional stock analyst. Do your own due diligence, past performance does not predict future performance, I’m not recommending any of those stocks, investing in stocks can be risky and you can lose your entire investment, I have no insider information on any of them so for all I know any one of them is just about to tank due to some scandal, etc. etc. etc.