But in the capital markets, bad news for the firm often can be good
news for investors who hold onto the stock and reinvest their dividends.
If investors become overly pessimistic about the prospects for a stock,
the low price enables stockholders who reinvest their dividends to buy
the company on the cheap. These reinvested dividends have turned its
stock into a pile of gold for those who stuck with Philip Morris.TOP-PERFORMING SURVIVOR FIRMS
Philip Morris is not the only firm that has served investors well. The return
on the other 19 best-performing surviving companies has beaten the return
on the S&P 500 Index by between 3 and 5 percent per year. Of the top 20
firms, 16 are dominated by two industries; consumer staples, represented
by internationally well known consumer brand-name companies, and
healthcare, particularly large pharmaceutical firms.^5 Hershey chocolate,
Heinz ketchup, and Wrigley gum, as well as Coca-Cola and Pepsi-Cola,
have built up wide brand equity and consumer trust. The four other win-
ner stocks are Crane, a manufacturer of engineered industrials products
founded in 1855 by Richard Crane; Fortune Brands, formerly American
Tobacco, founded in 1910, which has since divested its tobacco holding;
McGraw-Hill, a global information provider, founded by James H. McGraw
in 1899 and now the owner of Standard & Poor’s; and Schlumberger, an oil
service company begun by the Frenchman Conrad Schlumberger in 1919.
All these firms have, despite significant changes in the economic and polit-
ical landscapes, expanded aggressively into international markets.
One firm of particular note is CVS Corporation, which in 1957 en-
tered the S&P 500 Index as Melville Shoe Corp., a company whose name
was taken from the founder, Frank Melville, who started a shoe com-
pany in 1892 and incorporated as Melville Shoe in 1922.
Shoe companies have been among the worst investments over the
past century, and even Warren Buffett bemoans his purchase of Dexter
Shoe in 1991. But Melville was fortunate enough to buy the Consumer
Value Store chain in 1969, specializing in personal health products. The
chain quickly became the most profitable division of the company, and
in 1996 Melville changed its name to CVS. So a shoe manufacturer, des-
tined to be a bad investment, turned to gold as a result of the manage-
ment’s fortuitous purchase of a retail drug chain.CHAPTER 4 The S&P 500 Index 61
(^5) About one-half of the products of Fortune Brands qualify as consumer staples, but because of its
ventures in golf equipment and home improvement products, it is now classified in the consumer
discretionary index.