5 Market Centurions

08/15/2011 8:30 am EST


George Putnam

Editor, The Turnaround Letter

Age doesn’t always equate with strength, but in the business world, companies that have survived more than a century have a far greater likelihood of success than their younger brethren and are worth a look now, observes George Putnam III of The Turnaround Letter.

IBM celebrated its 100th anniversary recently with a big publicity splash. As part of its publicity campaign, IBM touted its ability to reinvent itself as one of the keys to its longevity.

That got us thinking about other prominent companies that have survived for a century or more, that might be currently reinventing themselves or otherwise taking significant steps to turn around their stock performance. We came up with a few interesting candidates, discussed below:

Alcoa (AA)
Founded in 1888, Alcoa suffered in the 2008 downturn, as aluminum prices fell sharply and customers cut back.

By early 2009, with a new CEO at the helm, Alcoa was implementing a wide-ranging restructuring program that included capacity reductions, layoffs, reduced capital spending and the divestiture of low-growth businesses.

A leaner and more focused company emerged that is now well positioned to capitalize on any turnaround in the aluminum market.

Campbell Soup (CPB)
This 1869 firm has a stable of powerful food brands, but it has struggled over the past decade to find the recipe for renewed growth. A new CEO took the helm this month, and she will literally be changing some recipes—in order to modernize the flavors of some of the company’s products.

But the company will be changing many other things as well. It might take a couple of quarters for results to materialize, but the stock’s valuation and dividend yield, along with a solid balance sheet, are quite attractive.

Coca-Cola (KO)
The world’s largest non-alcoholic beverage company, dating to 1886, has one of America’s more iconic brands. After some misguided attempts at reinvention—such as changing the formula for its flagship cola—the company is refocusing on its core brands and the potential for international expansion.

Together with management’s attention to delivering shareholder value via dividends and stock buybacks, this should boost the shares.

Corning (GLW)
Once a leading housewares company, the seeds of this 1851-vintage company’s future were sown some 30 years ago, when it invented fiber-optic cable. As a result, the company is today a leading provider of fiber-optic equipment to the telecommunications industry.

Corning’s glass products are also used in liquid-crystal displays for TVs, computers, and cell phones. Corning further rounded out its transformation into a technology company with the March 2011 acquisition of its MobileAccess wireless-solutions business.

While the stock performance has been disappointing recently, Corning has transformed itself many times over its 160-year history, and its balance sheet gives the company the resources to do it again.

Johnson & Johnson (JNJ)
This company has come a long way from its 1886 beginnings as a maker of surgical dressings. It is now an international health-care giant, with operations spanning pharmaceuticals, medical devices/diagnostics, and a wide range of consumer products.

Following a strong multi-decade run into 2002, investors valued J&J at more than 30 times earnings; but the stock has been rather flat over the last ten years as the growth premium eroded.

Nonetheless, Johnson & Johnson has maintained its relevance and dominance through a commitment to R&D, acquisitions, strategic alliances, and a continuous realignment of its businesses.

Today’s depressed valuation provides ample upside opportunity in the stock.

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