The Day Ahead: Digging Deep

 | Jul 05, 2013 | 8:00 AM EDT
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There is nothing I detest more in life than the "Three Ls" -- Losing, Lying and Leaches.

I bring this up because I've been out of the office of late, trying to learn how companies tick, and a key focus of mine has been on the culture of companies. A second concern has been on how companies transmit that cultures to workers who wouldn't recognize the CEO if he or she were standing in front of them. While you may want to hear about more macroeconomic matters -- and all that instant analysis of the June employment report -- the truth is that jobs growth will remain subpar (for a post-World War II recovery period) right on through into 2014, even regardless of any Fed action.

So you would be wise to look beyond that and understand each company you own on a deeper, more profound level. That starts with what I call "culture execution" -- that is, how the values of the company are shared and used each day in order to triumph against foes. Remember: When the U.S. gross domestic product is growing at 2%, most entities are simply attempting to thieve market share from the next guy via pricing and cost-effective new products and services. In other words, the marketplace itself is probably not experiencing rip-roaring growth!

My current primary challenge is in determining how companies are financially impacted as a consequence of continuously adhering to a certain set of internal standards. This may be, for instance, a certain revenue-per-employee figure dating back to 1990 -- or it might be dividend increases, which help stock-option-holding employees weather tougher times. Alternatively, should I just ignore these issues and jump to the stock price, comparing the name to its peers and to benchmarks?

Another roadblock is in taking the findings from numerical studies, and from discussions with executives, and empowering clients to find winning companies on their own. My team and I are clearly superhuman freaks of nature, but there is no way of covering every single publicly traded company -- or, at least, of covering them well. In many instances, our clients are wonderful, also bringing potential opportunities to the table. Then we go to analytical town.

When it comes to selecting companies with a winning culture, I have concluded that a good starting point is to look at a 10-to-15-year track record of the stock relative to three pure play competitors, three quasi-competitors and three benchmarks (could be an ETF). From there, head to the company's homepage and read its mission statement -- an overlooked item, in my view -- and then the proxy statement. In this way, you'll learn how executives score bonus payouts.

Then research past deeds of the company outside the clubby Wall Street ecosystem -- for example, buying 100 environmentally friendly trucks or paying above-industry-average wages. (Not all initiatives by a company should be designed to shut up a numbers crunching sell-side analyst.)

Thus far in my quest, the winners have been Starbucks (SBUX), Whole Foods (WFM) and -- to my surprise -- UPS (UPS). The unequivocal loser has been Wal-Mart (WMT). I couldn't care less about that nonsense that's spread at this company's annual meeting or their photo ops with the First Lady. Wal-Mart today has broken from the Christian values installed by founder Sam Walton.

If you have any companies that you would like me to look into further, please send me an email.

Side Note: All systems are go for my Friday appearance on the Fox Business Network at 4:15 p.m. EDT. Since this will be a panel format and last longer than normal, I believe we are going to touch on a range of topics. Of course, if you have any questions after the segment, please don't hesitate to reach out. I'm here to help you understand anything I said, which I hope won't be much. (Here's a huge boo to confusing #FinJargon!)

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