The latest issue of Fortune magazine just arrived in my mailbox. I always look forward to receiving this iconic publication, which is jam-packed with useful stock market data.

The magazine is famous for its annual list of “America’s Biggest Companies” as ranked by total revenue. The Fortune 500 list should not be confused with the S&P 500 Index. Standard & Poor’s ranks the top 500 American-based companies according to stock market value.

You might assume the two sets of stocks are roughly identical, but they are not. According to Fortune, “in any given year, around 330 companies are included in both the S&P 500 index of large-cap stocks and the Fortune 500.”

As I will soon explain, revenue does not always correlate highly to profitability. If anything, the Fortune data suggests that neither revenue nor profitability correlates highly to stock market performance. Below, I examine the lessons for investors. First, let’s take a look at the numbers.

Revenue

According to Fortune, the 10 largest American revenue producers in 2018 were as follows:

1. Walmart (NYSE: WMT) $514.5 billion
2. Exxon Mobil (NYSE: XOM) $290.2 billion
3. Apple (NSDQ: AAPL) $265.6 billion
4. Berkshire Hathaway (NYSE: BRK.A, BRK.B) $247.8 billion
5. Amazon.com (NSDQ: AMZN) $232.9 billion
6. UnitedHealth Group (NYSE: UNH) $226.2 billion
7. McKesson (NYSE: MCK) $208.4 billion
8. CVS Health (NYSE: CVS) $194.6 billion
9. AT&T (NYSE: T) $170.8 billion
10. AmerisourceBergen (NYSE: ABC) $167.9 billion

Okay, so no surprises there. This list correlates fairly highly with the list of companies ranked by number of employees, which makes sense. Walmart is also #1 on that list with 2.2 million workers; more than triple the 647,500 employees at #2 ranked Amazon.

Profits

Now, let’s take a quick look at Fortune’s list of the 10 most profitable companies last year:

1. Apple (NSDQ: AAPL) $59.5 billion
2. JPMorgan Chase (NYSE: JPM) $32.5 billion
3. Alphabet (NSDQ: GOOGL) $30.7 billion
4. Bank of America (NYSE: BAC) $28.1 billion
5. Wells Fargo (NYSE: WFC) $22.4 billion
6. Facebook (NSDQ: FB) $22.1 billion
7. Intel (NSDQ: INTC) $21.1 billion
8. Exxon Mobil (NYSE: XOM) $20.8 billion
9. AT&T (NYSE: T) $19.4 billion
10. Citigroup (NYSE: C) $18.0 billion

No surprises here, either. Keep in mind that this list is based on total profits to the company, not earning per share (EPS). You may have noticed that three companies — Apple, Exxon Mobil, and AT&T — appear on both Top 10 lists for revenue and profits.

In theory, those three companies should be among the Top 10 stocks as ranked by stock market performance, right?

Wrong!

Performance

Fortune also ranks the “Best Investments” over the past one, five, and 10 years. None of the top 10 companies for revenues or profits were among the best performing stocks in 2018.

Of the 10 best performing stocks in 2018, only one of them, HCA Healthcare (NYSE: HCA), also ranked in the top 100 for revenue at #67. The top five performing stocks have an average revenue ranking of 345.

The correlation improves over time, but not to a meaningful degree. Over five years, the top five performing stocks had an average ranking of 305 for revenue. Over 10 years the average drops to 251, which is still above the statistical median point for the entire Fortune 500 list.

That’s hardly a ringing endorsement for revenue as a predictor of stock market performance.

Nevertheless, a comment in a sidebar column suggests Fortune may soon be offering investors the opportunity to trade its list of stocks that it claims has outperformed the S&P 500 Index by a considerable margin over the past 20+ years: “Coming soon: products to help investors profit from that advantage.”

What does that mean? Probably one or more exchange-traded funds (ETFs) that track the Fortune 500, and possibly subsets of that list based on profitability, etc.

I think that is a great idea from a liquidity perspective. So much money is invested in products tied to the S&P 500 that an alternative universe of large-cap stocks should add some much needed diversification to what has become a highly concentrated market.

However, that still doesn’t solve the problem of determining which Fortune metric(s) are best for anticipating stock market performance. And perhaps that’s the major takeaway from all that data. We can easily measure what has already happened, but cannot predict what is yet to come.

The good news is, I know someone who has consistently outperformed the stock market in good times and bad. Not by predicting which direction it may turn next, but by using a system that works no matter which way it goes.

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