Does your portfolio have a good "Reputation Quotient"?
It might, if you own many of the companies considered to have the best reputations as measured by an annual Harris Poll survey.
Last month, the polling giant released its 17th annual Reputation Quotient, or RQ, Summary Report. It measures corporate reputation ratings for the 100 most visible companies in the U.S., as perceived by the general public.
This year, Amazon.com (AMZN) came out on top as the company with the best reputation among the general public. The online retailer of just about everything has been in the top 10 for the past eight consecutive years.
Other companies that made it onto the top 10 Harris Poll list (in descending order) include:
• Apple (AAPL)
• Google (GOOGL)
• Disney (DIS)
• Publix Super Markets
• Samsung (SSNLF)
• Berkshire Hathaway (BRK-B)
• Johnson & Johnson (JNJ)
• Kellogg Company (K)
If you own any of the companies in the RQ report (Apple is a cornerstone position in my Cash Flow Kings and Global Trend Trader newsletters), then your portfolio likely scores well on the Reputation Quotient.
Yet what is an "RQ," and why should it matter to investors?
Image credit: The Harris Poll
According to the press release from Harris:
RQ…measures companies’ reputation strength based on the perceptions of more than 23,000 Americans across 20 attributes classified into six corporate reputation dimensions: Social Responsibility, Emotional Appeal, Products and Services, Vision and Leadership, Financial Performance, and Workplace Environment.
Essentially, the RQ measures both the emotional, fiscal and even the "intangible" aspects of what people think about companies.
According to Sarah Simmons, senior reputation consultant at Nielsen, which owns The Harris Poll:
"Best-in-class companies demonstrate that corporate reputation matters — to your customers, employees, potential hires, business partners and investors …
"Not only does it matter, but corporate reputation is critically important to measure and understand in the context of your company’s business goals.
"A positive reputation can provide competitive advantages and help your company achieve its objectives, while a poor one can obstruct your ability to execute against your business plan."
This is important. That’s because there really is no substitute for a good reputation when it comes to your company.
And as much as the metrics might look perfect when it comes to investing in certain stocks, they are just part of a much-bigger story.
In other words, if a company has a poor or negative reputation with the public, often this keeps its stock from performing for investors the way the fundamentals and/or technicals suggest it should.
One thing I like about the RQ poll is that it identifies some of the most-prominent companies that experienced a big decline in reputation.
Not surprisingly, the emissions scandal last year caused Volkswagen AG (VLKAY) to plunge some 20.5 RQ points. This took the German auto giant from a "very good" 75.21 score in 2015 to a "very poor" rating of just 54.75 in 2016.
Other companies that experienced a slide in reputation (although nowhere near that of Volkswagen) were CVS Corp. (CVS) and Starbucks (SBUX). Both companies slid from a "very good" rating to just a "good" rating.
Another aspect of the Harris RQ Poll is something the company calls "Opinion Elites."
This is where each company in the RQ study is also rated by what it calls Opinion Elites, which it defines as:
… a sub-segment of the general public who are more informed, more engaged and more involved in current issues. Because of this interest, Opinion Elites tend to exert influence over the general public. UPS, Costco, Meijer, The Coca-Cola Company, and BMW have a better reputation among Opinion Elites than the general public and all appear on the Opinion Elites’ top ten.
Now, I am not too comfortable with the notion of so-called "Opinion Elites." But here I understand that these are industry leaders and even investors with a little bit more pointed view of the firms in the list.
According to Simmons,
"Eighty percent of the companies in the RQ study have a better reputation with Opinion Elites than among the general public. Companies that have a lower RQ rating with Opinion Elites than with the general public have had significant and high-profile reputational issues in recent times, reinforcing the lesson that having a plan and managing communications with this highly influential audience is essential."
One way to see the difference between the Opinion Elites surveyed and the general public is to look at the statistic provided by Harris.
Here they claim that, according to the RQ study, 72% of Opinion Elites say they investigate corporate behavior before buying. Meanwhile just 53% of the general public indicated they proactively seek information about the companies they do business with.
The study also showed that 57% of Opinion Elites say they’ve decided not to do business with a company because of something they learned about it. Just 37% of the general public indicated the same.
This tells me that "Opinion Elites" are basically informed and very engaged consumers — of the sort that resemble the informed and engaged readership we write for at Uncommon Wisdom Daily.
While I wouldn’t make a direct investment decision based on the Harris Poll RQ findings, I would be skeptical of a company — Volkswagen is the prime example — that saw its RQ fall precipitously.
A decline in reputation is never good. But it’s really never good if that decline also comes with a big sell-off and a sharp decline in share price.
Conversely, I wouldn’t buy a stock just because it had a very high RQ. However, I certainly would consider that a positive in terms of attracting investor capital.
Hey, let’s face it. The better the reputation, the more investors will embrace your stock — and that’s generally a very good thing.
What do you think about a company’s reputation and how it relates to investing? Are you more likely to buy stock of a company you think well of? Or, are you all about the bottom line and nothing else?
Stocks took a bit of a breather from their five-week run-up. But they still managed to eke out a gain to start this holiday-shortened week. The Dow Industrials gained just 21 points, or 0.1%. Elsewhere in the news today:
• The Shanghai Composite Index rose to a two-month high. A rally in financial stocks helped it to surge above 3,000 after policy-makers relaxed lending rules…
• Marriott (MAR) upped its bid to $13.6 billion to buy Starwood (HOT), after a surprise bid from Chinese firm Anbang Insurance Group threatened to topple the planned merger between the two U.S. hoteliers.
• Do robots make tips? Domino’s just unveiled "DRU," a robot delivery driver, in Australia, France, Germany, Japan and several other countries. DRU is the result of a project with Marathon Targets, an Australia-based robotics company.
• Home resales fell 7.1% in the U.S. in February. Economists had expected existing-home sales to fall 2.8%.
• Painting partners: Sherwin-Williams (SHW) is set to buy Valspar (VAL) for $113 per share. The Cleveland-based Sherwin should benefit from Minneapolis-based Valspar’s presence in several large home-improvement stores. This all-cash deal, valued at $11.3 billion, also leverages Valspar’s international market.
Good Luck and Happy Investing,
Uncommon Wisdom Daily