America’s Most Successful Second Place Companies

“Never look over your shoulder. Something might be gaining on you.”–Satchel Page

Jack Welsh once said that GE would sell any division of the conglomerate that was not No.1 or No.2 in its industry. It was an admission that there is profit in being in second place.

24/7 Wall St. examined many sectors to find publicly traded firms that are highly profitable and, sometimes do better financially that the No.1 companies in their fields.  The shares of six of the seven No.2 companies either outperformed or matched the market performance of their larger rivals over the last year, if Ford’s stock price improvement is considered better than the increase of value in the recently bankrupt GM. The conventional wisdom may be that the firm with the most market share and the largest sales has tremendous advantages over smaller rivals, but from the standpoint of the stock market, that is not always true.

Avis –  For years, “We Try Harder” was the slogan for Avis.  Shareholders have been the beneficiary of the corporate effort of Avis. Avis Budget Group’s (CAR) stock has handily outperformed Hertz (HTZ) over the last year. Avis’s shares are up from a 52-week low of $.76 to $14.95. Hertz’s shares have risen from $4.26 to $12.55. Avis is the smaller company with revenue of $5.1 billion in 2009 compared with $7.1 billion for Hertz.

Chart: HTZ vs. CAR

Lowe’s – The company runs a distant second to the home improvement retailer Home Depot (HD.  In its last fiscal year which ended in January, Lowe’s had revenue of $47.2 billion and net income of $1.73 billion.  Home Depot’s revenue was $66.2 billion with net income of $2.7 billion, during the same period. The difference in the companies’ sizes has not mattered in terms of stock price over the last year. Shares in both firms are up about 25%.

Chart: LOW vs. HD

Ford – The No.2 US car company’s shares have gone from a 52-week low of $3.27 to a 52-week high of $14.52. Ford trades at $12.72 now. Although Ford sells more vehicles than GM in some months, it is still slightly smaller in annual unit sales. In March, GM sold 188,001 cars and light trucks and, which was up 21% over the same month last year. Ford sold 183,425 units last month, up 40%. Ford survived the industry downturn while GM went though Chapter 11 and had to take $50 billion in taxpayer money.

Chart: F

Target – The No.2 big box retailer is dwarfed by its larger rival, Walmart. In the fiscal year ending in January, Target had revenue of $65.4 billion and net income of $2.5 billion. Walmart’s revenue was $408.2 billion for the same period and its net was $14.3 billion. Target, however, has trashed Walmart in the stock market over the last year, increasing nearly 40% compared to the larger company’s 7%.

Chart: TGT vs. WMT

Apple – Most investors do not think of Apple as a second place company. But, in the smartphone market, the iPhone trails RIM’s (RIMM) Blackberry. ChangeWave reports that the Blackberry’s U.S. market share is 39% to the iPhone’s 31%. RIMM’s revenue in its last fiscal year was $15 billion. Its net income was $2.5 billion. Apple’s revenue in its last fiscal year was $36.5 billion. Analysts estimate that about a third of Apple’s sales come from the iPhone. Over the last year, Apple’s shares are up 100% to 10% for RIM.

Chart: AAPL vs. RIMM

TD Ameritrade is the second largest discount broker in the US behind Charles Schwab (SCHW). In its September fiscal year, TD Ameritrade had revenue of $2.4 billion and net income applicable to common shares of $644 million. Schwab’s revenue in its December fiscal year was $4.2 billion and net applicable to common was $787 million. TD Ameritrade’s shares are up 28% over the last year. Schwab’s shares are up only 10%.

Chart: AMTD vs. SCHW

Burger King – Its larger rival McDonald’s outperformed the No.2 fast food in almost every important financial measurement. Its share price is down 10% over the last year while McDonald’s is up 22%. In its last fiscal year, Burger King had modest revenue of $2.5 billion and net income of $200 million in its June fiscal year. McDonald’s revenue for its December fiscal year was $22.7 billion. Net income was $4.6 billion. This makes Burger King the only No.2 company on the list with a share price that trailed its larger competitor.

Chart: BKC vs. MCD

Douglas A. McIntyre