I came across an interesting story over the weekend at the Consumerist.com about a study published in the Journal of Marketing claiming well above average returns in the stock market by focusing on companies that score in the top 20% of the American Customer Satisfaction Index (ACSI).  I don’t place much importance on theoretical gains based on backtesting and paper profits but from 1996-2003, the portfolio outperformed the Dow Jones Industrial Average by 93%, the S&P 500 by 201%, and NASDAQ by 335%.  I won’t go into the details of the study here, but the bottom line is that treating employees well leads to happy employees, leads to less turnover, leads to lower customer costs, leads to higher customer satisfaction which all leads to greater company profits and a higher stock price!  While customer satisfaction scores may be important for the long term, Warren Buffett style investor, I’ll stick to technical analysis for entries and exits.

So which companies are leading the way in customer satisfaction now?  I’ve listed only the top companies in each industry – you can get the full lists at the ASCI website

• Restaurants: Olive Garden – it’s owned by Darden Restaurants (DRI) [score: 80]
• Limited Service Restaurants – Starbux (SBUX) [78] and Wendy’s (WEN) [78]
• Hotels – Marriot (MAR) [79]
• Cable & Satellite – DirectTV [67]
       * interesting to note that Comcast which is the subject of frustration for many consumers scored near the bottom with   [56] although I’ve never had any problems with them
• Cell Phones – Motorola (MOT) [72]
• Fixed Line Phone Service- Verizon (VZ) [72] and Qwest (Q) [72]
• Wireless Phone Service – Verizon (VZ) [71]
• Airlines – Southwest (LUV) [76]
• Express Delivery – Fed Ex (FDX) [84]
• Energy Utilities – Southern Company (SO) [82]
• Ecommerce – Ebay (EBAY) [80]
• Internet Brokerage – Charles Schwab (SCHW) [80]
• Internet Retail – Barnes & Noble (BKS) [88] & Amazon (AMZN) [87]
• Internet Travel – Expedia (EXPE) [78]
• Finance & Insurance – Wachovia (WB) [80]
• Property & Casualty Insurance – GEICO [83] which is owned by Berkshire Hathaway (BRKA)
• Department & Discount Stores – Kohl’s (KSS) [80]
• Health & Personal Care Stores – CVS Corp (CVS) [78]
• Specialty Retail – Costco [81]
• Supermarkets – Publix Super Markets (private) [83]; Kroger (KR) is second with score of 76
• Apparel – Sarah Lee (SLE) since when does Sarah Lee make apparel?
• Athletic Shoes – Reebok [78] which is owned by Adidas and doesn’t trade in US market; Nike (NKE) is next best option
• Breweries – Molson/Coors (TAP) [83]
• Food Manufacturing – HJ Heinz (HNZ) [87]
• Personal Care & Cleaning Products – Clorox (CLX) [86]
• Soft Drinks – Cadbury Schweppes (CSG) [86] & Pepsi (PEP) [86]
• Internet News – USATODAY.com owned by Gannet (GCI) [74] & CNN.com owned by Time Warner (TWC) [74]
• Internet Portals – Yahoo (YHOO) [76]
• Internet Search Engines – Google (GOOG) [81]
• Automobiles – Toyota (TM) [87]
• Appliances – Whirlpool (WHR) [82] & General Electric (GE) [82]
• Personal Computers – Apple (AAPL)

That’s quite a list of outstanding blue chip companies!  I’ll have to revisit this post in a year and see how these companies did collectively vs. the S&P500.