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A Post-Lehman World: Top Stocks Then & Now

September 17,2018 16:24

This article details the top 20 constituents of the S&P 500 today versus ten years prior. Tech has dominated old economy businesses, reshaping this constituent list. A quick overview of the change in the market leaders provides a snapshot into the ...and more »



This article details the top 20 constituents of the S&P 500 today versus ten years prior.
Tech has dominated old economy businesses, reshaping this constituent list.
A quick overview of the change in the market leaders provides a snapshot into the changing economy over the past decade.

September 15th marked the 10-year anniversary of the Lehman Brothers bankruptcy, an infamous lowlight of the financial crisis and the resultant Great Recession. This article details the largest 20 companies in the S&P 500 (SPY) by market capitalization today versus the largest 20 companies in the S&P 500 the day Lehman declared bankruptcy. The dramatic re-shaping of these market leaders has had and will continue to have important implications for equity investors. The top 20 companies today have a combined market capitalization $8.6 trillion, greater than the annual gross domestic product of every country but the United States and China.

The Dominance of Tech
New economy companies dominate the list. Apple (AAPL) has moved from #14 on the list in 2008 to #1, increasing its market capitalization eight-fold to over $1 trillion. Amazon (AMZN) had an even more impressive run, climbing from #77 to #2, and increasing market cap by nearly 30x from $33B to $960B, Microsoft (MSFT) actually fell one spot from #3 to #2, but more than tripled in value. Alphabet (GOOG, GOOGL) climbed from #10 to #4, increasing value nearly seven-fold. Facebook (FB) was sill private in the fall of 2008. The company had just passed 100 million active users (about 5% of today's total) and had private equity valuations in the $4-$5B range, roughly 1% of its current valuation.
Energy Transformation
Over the last ten years, we have seen an energy revolution in the United States. In 2018, oil production broke 10 million barrels per day for the first time since 1970. The shale revolution has created tremendous natural gas supply, making the export of liquefied natural gas a viable new industry. Despite this transformation, Exxon (XOM) has fallen from its spot as the largest U.S. company by market capitalization to #9. Its market capitalization has actually fallen over this period, and it has generated just 4% annual returns over the past decade, including reinvested dividends. Chevron (CVX) fell from #8 to #20, producing 7.8% annualized returns, including reinvested dividends, lagging the broader market.
Changing Consumer Preferences
Tobacco maker Phillip Morris (NYSE:PM) and beverage companies Coca-Cola (KO) and PepsiCo (PEP) all fell out of the top 20. Per capita consumption of soda fell every year over the last decade. Cigarette use has fallen by roughly one-third. These three companies have still managed 7-8% annualized total returns, including reinvested dividends, but have lagged the S&P 500 by 3-4% per annum.
Skew At the Top
In September 2008, the median market cap of the S&P 500 constituents was just under $10B. Today, that figure is roughly $22B. The top 5 companies in 2008 were, on average, 27x larger than the median constituent. Today, that figure is 39x. For a cap-weighted index, this adds increased importance to the performance of the tech heavyweights to forward returns.
Summary
There are many other stories within this listing. The re-shaping of the banking universe, led by JPMorgan (NYSE:JPM). The shift towards e-commerce from traditional brick-and-mortar retail. The outperformance of healthcare as that sector continues its outsized growth as a percentage of the economy. I hope this overview gives Seeking Alpha readers a digestible glance at the change in market structure over the past decade, and offers some fodder for thoughts around what the next ten years might bring.
Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore, inherently subject to numerous risks, uncertainties, and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.
Disclosure: I am/we are long SPY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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