ranking Phillips Petroleum, merged with Conoco (Continental Oil Co.)
to form ConocoPhillips in 2002.
The only firm to beat any oil firm is General Electric, founded in
1892 as a result of the merger of Thomson Houston and Edison General
Electric, the latter founded by Thomas Edison. As noted in the last chap-
ter, General Electric is the only member of the original Dow Jones In-
dustrial Average that has survived intact today. Although GE is listed in
the industrial sector, about one-half its revenue comes from its financial
and healthcare divisions and NBC.
Two other companies of the original largest 20 bested the perform-
ance of the S&P 500 Index over the last half century. They are Sears and
Roebuck, thanks to the transformation wrought by Eddie Lampert, who
changed the stodgy retailer into a dynamic hedge fund operation. The
other is IBM, a firm that in 1957 was two-thirds of the value of the tech
sector and has just been able to beat the S&P’s return since 1957.^3
Eight of the original 20 largest companies lagged the performance
of the S&P 500 Index. Two deserve attention. U.S. Steel and AT&T were
at one time the largest corporations in the world. Through industrial
changes and corporate divestments, they shrunk to a tiny fraction of
their former size, but they have been revived, and as of 2007 they are ex-
panding rapidly.
U.S. Steel was formed in 1901 from the merger of 10 steel companies,
led by Andrew Carnegie and financed by J. P. Morgan. After the merger, it
was the first billion-dollar-sales company in history, and it controlled two-
thirds of the U.S. market. To cushion itself against rising energy costs, it
bought Marathon Oil Company in 1982 and renamed itself USX Corpora-
tion. In 1991, U.S. Steel was spun off as a separate firm, and in 2003, the
value of its shares sank to just over $1 billion, the same size as it was a cen-
tury earlier. Aggressive cost cutting has brought U.S. Steel back, and it is
now the second-biggest steel producer behind Mittal Steel USA, which
purchased, among other steel firms, the bankrupt assets from Bethlehem
Steel, the eighteenth-largest company in the S&P 500 Index in 1957.
American Telephone and Telegraph Co. was the largest company in
the world when it joined the S&P 500 Index in 1957, and it remained that
way until 1975. The company boasted a market value of $11.2 billion in
1957, a capitalization that would rank in the bottom 200 of the S&P 500
firms in 2007. The telephone monopoly known as “Ma Bell” was broken
up in 1984, giving birth to the “Baby Bell” regional providers. But theCHAPTER 4 The S&P 500 Index 57
(^3) Today IBM is only 7 percent of the technology sector, and its market value is eclipsed by both
Microsoft and Cisco.