Lorillard Inc. (LO), Microsoft Corporation (MSFT), Exxon Mobil Corporation (XOM): What Do Cigarettes, Software, and Oil Have in Common?

Looking forward

It’s important to add a few words on the future prospects of these three giants in the light of the parameters above. I believe that the shale gas revolution going on in the U.S right now will have a direct impact on ExxonMobil – it will most probably depress its net income (cheaper fuel means fewer profits) but its profit margins will greatly improve because of the ability to operate machinery at a much cheaper cost. Lorillard, the maker of cigarettes, might sell more cigarettes but it will likely witness its profit margins drop due to a constant increase in the price of raw materials, together with heavy taxation from the regulator targeted at causing people to smoke less. In the technology front, Microsoft Corporation (NASDAQ:MSFT)’s gross profit is also expected to gradually decrease due to heavy competition and the transition from PCs to more mobile devices.

The good news is, though, that no matter what happens to these businesses, I firmly believe that your shareholder yield will remain intact. All three are highly committed to share buyback programs and dividend payouts. This means that even if income decreases, your yield remains the same.

The Fool thinks capital efficiency

If you wish to grow your capital consistently over the years… you must invest in capital- efficient businesses. Lorillard, Microsoft, and Exxon have turned capital efficiency into a form of art. That’s how each of them became a leader in its respective sector, and this is why these three companies are likely to lead their sectors in the future.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft.

The article What Do Cigarettes, Software, and Oil Have in Common? originally appeared on Fool.com and is written by Shmulik Karpf.

Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.