Number 2 Companies That Try Harder and Outperform Their Number 1s


When I was growing up Avis (CAR) the car rental company had a motto, "We're number two, but we try harder. " which was part of a massive campaign to capture business away from the number one car rental company, Hertz (HTZ). The idea was that just because you are the second largest company does not make you second best.
Jim Cramer talks about being "best in class" whereby being best is not necessarily being the biggest. It is the company that executes the best. Eventually, the number twos could overtake largest company in their sector because they are better. Of course we have to be careful because sometimes companies are second largest because they are not as good. I call this the "Second Banana Syndrome." Many second banana companies have made it to my Worst-Run Company List Advanced Micro Devices (AMD) is an example of such a company.
So, I decided to take a look at several pairs of stocks for US-based corporations in which one company was the largest and the other was the second largest within their sector. Using my Bloomberg Professional Service terminal at Seton Hall University's Stillman School of Business, I compared how each of those companies performed on from the market bottom on March 9, 2009 through the end of October 2011.

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