Editor’s Note: This article is based on the 2022 edition of Morningstar’s Best Companies to Own. Read about our selection methodology here.
Armed with innovative stock picks, ARK Invest CEO Cathie Wood is a financial media favorite. CEO Abby Johnson transformed Fidelity Investments from a firm reliant on active management of traditional mutual funds to one that now offers financial advice, brokerage services, and index funds. CEO Sallie Krawcheck, who launched Ellevest as a digital financial advisor for women, is an outspoken–and often quoted–proponent of closing the gender pay gap.
Don’t let these successful headline makers fool you, though: Women still hold a disproportionately small number of CEO roles among U.S. companies. How small? Only 8% of the companies on Morningstar’s inaugural list of the best companies to own are led by female CEOs.
Of course, buying a stock simply because the company’s CEO is a woman doesn’t make any more investment sense than buying a stock simply because the company’s CEO is a man. Instead, you want to examine fundamentals, consider valuation, and apply whatever other investment metrics matter to you before buying. Moreover, CEOs come and go. That woman-led company may be managed by a man–and vice versa–soon enough.
But given that International Women’s Day is right around the corner, today we’re highlighting the companies with female CEOs that made our list of the best companies to own in 2022. These companies earned their spot on the list by having carved out wide Morningstar Economic Moat Ratings and having made smart decisions with their capital.
Here’s a closer look at three of the names from the list.
“Accenture is one of the largest IT-services companies in the world, providing both consulting and outsourcing capabilities. We think that Accenture’s growth will remain at a healthy and gradual pace, rather than experience a massive uptick. Still, with the company’s prominent reputation, which we believe to be crucial to the consulting business, and its proven ability to bring expertise to a gamut of enterprise issues, we are confident Accenture will maintain its wide economic moat.
“As a consultant, Accenture provides solutions for specific enterprise problems as well as broad-scope strategies in addition to integrating software for more than 75% of the global top 500 companies. As an outsourcer, Accenture offers business process outsourcing like procurement services as well as application management. Slicing across both divisions, Accenture has stressed the increasing portion of its business as ‘the new.’ This includes its digital marketing agency, Accenture Interactive, as well as its applied intelligence, supply chain, cloud, and security services. In our opinion, however, there is always something new in the realm of enterprise technology to keep Accenture relevant and engaged with its most important customers.
“In our view, Accenture’s wide moat stems from intangible assets associated with a stellar reputation for reliability and strategic and technological know-how, especially with large, risk-averse enterprise customers. We also believe Accenture benefits from high customer switching costs as its key customers are loath to switch service providers for large or ongoing contracts. Further, we think Accenture generates industry-leading returns on capital because of its scale, given that there are only so many blueprints and software partners that an IT-services company needs to solve enterprise problems. Plus, with Accenture having one of the largest IT workforces (at half a million) and an industry-leading number of diamond accounts (typically $100 million annually or more), smaller IT-services companies may find it hard to keep up with the increasing innovation and know-how required to service enterprise technology.”
–Julie Bhusal Sharma, analyst
“The pandemic prompted consumers to scour the shelves for Clorox’s fare, boosting sales. And even as volume growth is decelerating, we don’t think consumers are turning their backs on Clorox’s cleaning and disinfecting products, as sales remain well above where they were before the pandemic. For one, its health and wellness arm (around 40% of sales, housing its retail and professional cleaning operations) was up 20% in the first and second fiscal quarters on a two-year stack basis. Further evidencing the strength of its brand mix, Clorox just posted its second consecutive quarter of double-digit market share gains in the disinfecting wipes aisle.
“And we expect management will continue investing to ensure that its prowess holds. In this context, Clorox intends to invest $500 million over the next five years to bolster its digital capabilities (in light of the stepped-up e-commerce adoption that has taken hold throughout the pandemic) and to look for additional productivity advancements throughout the organization, which we view as a prudent way to fuel further investments.
“But Clorox (along with a host of players in an array of industries) is facing a rampant surge in broad-based cost pressures (qualitatively referred to as unprecedented relative to the past few decades). In this vein, management indicated higher manufacturing and logistics costs were a 640-basis-point drain in the second quarter, and commodity price inflation ate into gross margins by another 510 basis points. Despite this, we’re encouraged that its rhetoric suggests investments in innovation and marketing will still take top billing from a capital allocation perspective, which we view as judicious. Our forecast calls for Clorox to expend a low-double-digit percentage of sales toward research, development, and marketing on an annual basis. We view this spending as particularly critical against the current backdrop (elevated inflation and intense competition). More specifically, Clorox goes to bat with lower-priced private-label offerings in most of the categories in which it plays, but we think investments in innovation and marketing should help its fare stand out on the shelf and stifle trading down.”
–Erin Lash, sector director
“Zoetis is the undisputed leader in the global animal health industry, and we believe it possesses the widest moat of all the competitors. Zoetis has set itself apart based on its impressive innovation that shows up across its product portfolio, including a number of drugs for specific pet ailments such as separation anxiety. The firm has also sought to expand its presence into virtually every type of animal-related health market, including aquaculture and pet diagnostics.
“The animal health industry had long been largely ignored because these businesses were buried within larger human health companies, but no longer. It has many attractive characteristics, including cash-pay buyers, a fragmented customer base, and minimal generic competition. Because of the fragmented and cash-pay customer base, animal drugmakers hold significant pricing power. On the human health side, firms are traditionally at the mercy of payers. Government payers or large managed-care firms with pharmacy benefit managers have more power to force generic utilization, squash price increases, and even in extreme cases force price cuts from drug manufacturers. However, animal health products are purchased by a fragmented group of protein producers, veterinarians, and pet owners, allowing very little bargaining power over the highly concentrated animal health firms.
“This industry also benefits from favorable growth tailwinds that should allow Zoetis to increase revenue at a low-double-digit long-term growth rate. On the production animal side, rising standards of living in emerging markets should lead to wider adoption of meat-heavy diets, driving greater demand for livestock products. On the companion side, Zoetis benefits from pet owners’ increasingly strong relationships with pets as members of the family, which drastically increases their willingness to pay for expensive treatments. We expect Zoetis to grow faster than the industry and maintain above-average margins owing to its scale and its shift toward the faster-growing companion animal segment. Zoetis’ investments in dermatology and parasiticide innovation have been paying off handsomely here.”
–Debbie Wang, senior analyst