America's Most Admired Companies Recent bad press hasn't dimmed the business world's affection for Wal-Mart. Plus, once-sluggish IBM surges onto the top ten list.
By Ann Harrington

(FORTUNE Magazine) – 1. Wal-Mart 2. Berkshire Hathaway 3. Southwest Airlines 4. General Electric 5. Dell 6. Microsoft 7. Johnson & Johnson 8. Starbucks 9. FedEx 10. IBM

Those of you who have read about Wal-Mart locking in its employees overnight or being raided by the feds may be scratching your heads (see "Should We Admire Wal-Mart?"). Ditto any investors who've seen Wal-Mart's stock lag behind the market for the past year. But the 10,000 executives, directors, and analysts whom FORTUNE polled in late 2003 weren't deterred: They have named the retailing juggernaut America's Most Admired Company for the second year in a row.

These survey respondents don't flinch at a few negative headlines (you may recall that Microsoft, a member of the Most Admired top ten for a decade, has had its own issues with the government). And though they care about the bottom line, they aren't fixated on one year's results. Wal-Mart wins the business world's esteem because it is the most dominant force in commerce, renowned for its superb efficiencies, unprecedented clout with suppliers, and pervasive influence on everything from pop culture to the consumer price index. And though its stock has been uninspiring lately, over the past six years it has outperformed the S&P 500 by a hefty margin (a total return of 178% vs. 25%). Long-haul performance is something Wal-Mart has in common with the other nine companies on the list: Over that same six-year period, this year's top ten stocks returned an average of 124%.

Though the 2004 list is remarkably similar to 2003's, there is one bit of drama: IBM has returned after 17 long years. Stock performance isn't the only reason. CEO Sam Palmisano credits his predecessor Lou Gerstner, who led the company's turnaround, as well as Big Blue's refusal to "hunker down" during the recession. "We believed strongly that the IT industry was undergoing a historic reordering, and we wanted to reposition the company to lead that shift," he says. Eighteen months ago Palmisano announced an "on-demand initiative" to provide computing services to customers as they needed them. At first, Palmisano says, "our competitors derided our strategy," but now "most of them have copied it in some way."

Imitation, after all, is the sincerest form of admiration. For more on that subject, turn the page and read about how No. 3 Southwest keeps beating back the copycats. Curious what your peers think of your corporation? Complete Most Admired listings for companies in 64 industries follow.