The CE 100 index.

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Our fifth annual ranking of stock-price stars features a host of new players, some long-term residents, and a few critical insights into corporate management trends.

If you're looking for a dramatic increase in your share price, this might just be the formula: Make sure you're in the right industry (technology, for example) - or at least in one that's ripe for market-share growth. Be a CEO with real vision and a sharp focus. Surround yourself with smart, motivated, empowered people. Start from a low base. And, as a company, don't be too well-known.

But even if you're in command of all those factors, don't be surprised if your success - by this measure, anyway - is fleeting, measured much the way Andy Warhol measured fame. Just because you lead the pack this year doesn't mean you won't drop toward the bottom 12 months from now. And that wouldn't necessarily mean you've failed your shareholders, or you're a bad CEO, or your company is a less-than-worthwhile investment: Chances are, a close look at measures you influence such as book value per share, earnings per share, equity market capitalization, return on common equity, net margin, cash flow per share, and revenue per share will boost your CEO performance rating far above that of executives who merely watched their companies' stock prices go through the roof as they became credible for the first time. After all, as they say, a steady hand stays the course.

This year's CE 100 - and, especially the top 10 - is dominated by technology companies, with most of the highest performers operating in technological areas outside the rather troubled computer category. And 63 of the top 100 are brand-new entries; in fact, only one of this year's top 10 was even among the CE 100 last year - Tellabs (4 this year, 7 last) - and last year's top performer, DSC Communications, dropped down to 66 this year.

On the other hand, this year's recipient of the top CEO Performance Index rank (a new measure introduced this year that seeks to level the playing field among industries by looking at other relevant measures of growth and success) is Ken Levy, whose KLA Instruments dropped to 35 on the CE 100 from 29 last year. No. 2 is Wilfred Corrigan, whose LSI Logic rose from 20 to 17 in share-price performance alone. And defying the trend entirely at No. 3 is Arthur del Prado, whose Advanced Semiconductor Materials hit No. 1 on this year's CE 100 - the first time it's ever made the list. The industry served by all three of these companies: semiconductors.

EXHIBIT I: BATTLING THE BENCHMARK

CE 100 Performance: Stock-price changes for 12 months following
publication of list

                                             12 months following

                                          CE 100            S&P 500

1989-1991 List                            +12.1%             +9.8%
1990-1992 List                             -4.8              -1.4
1991-1993 List                            +36.3             +22.7
1992-1994 List(*)                         +20.6             +15.5
Cumulative Change                         +75.4             +53.4

* 1992-1994 list is through December 29, 1995, only.

Dates of purchase are end of month published as follows: 1989-1991
list - September 30, 1992; 1990-1992 list - June 30, 1993;
1991-1993 list - July 29, 1994; 1992-1994 list - May 31, 1995.

Cumulative change is through December 29, 1995. Cumulative change
numbers combine performance of lists in 12 months following
publications, or through December 29, 1995, in the case of the
1992-1994 list.

Source: Mitchell and Co.

To get a sense of what this means, as a guide to both management and investment, we took a close look at the numbers and the measures, checked in with a number of analysts, surveyed 47 individual CEOs, and profiled three of the companies in the CE Index' top 10. Here's what we found out:

WHO'S BACK AND WHY

Companies that repeated from earlier lists showed a fine balance of growth in both sales and book value per share, combined with a high-ending rank in ROE and growth in profit margin. This was particularly true of Tellabs, Applied Materials, and KLA Instruments. "If you don't control expenses while keeping up and staying focused," notes Tellabs CEO Michael Birck, "you cannot be successful. We try to avoid bureaucracy like the plague, encouraging open communication of decision making as close to the customer as possible."

Although they may have soared above repeaters in terms of share-price increases, newcomers generally trailed repeaters in other performance measures, indicating that without further performance gains in 1996, they may not make the list next year.

Despite the turnover in the CE 100, there are four companies and CEOs who are now 4-for-4. These four - Lawrence Coss of Green Tree Financial (34 this year), Thomas Golisano of Paychex (79), James Morgan of Applied Materials (28), and Phillip White of Informix (72) - grew their stock prices an average of 118 percent between June 1994 and June 1995 (compared with the S&P's growth of 23 percent). Fourteen other CEOs made the list for the third consecutive year. These 18 repeaters grew their stock prices in 1995 by an average of 66 percent.

WHO'S NEW AND WHY

According to analysts, this year's new kids on the block share some common traits:

* Product demand: ASM, notes Leonard Sanders, an analyst with Needham & Co. in New York, has "had a couple of strong products that have really been able to gain market share. There's been a big upswing in demand, and the future for semiconductor demand in general is very strong." Similarly, adds Needham's Michael Christinziano, US Robotics (5) "has participated in the explosion in remote access to corporate and public data resources. Internet service providers use their equipment, as do all the people who buy modems to access data."

* Focused, visionary CEOs: ASM's del Prado, says Sanders, is "a very hands-on technological chief executive." BMC Industries' Paul Burke (6), notes Charles Webster, an analyst with Piper Jaffray in New York, has "tremendous vision for the company and for the individual businesses. He has a tremendous ability to set the right operating benchmark." And Casey Cowell of US Robotics, adds Christinziano, "started the company with a few hundred dollars in electronic components. He's built a company that's going to do more than $1 billion this year."

* A solid team: "The people at Safeguard Scientifics (7) are absolutely outstanding," says James Hartke, an analyst with Laidlaw Equities in New York. "After working at it, they've got together criteria of how to pick companies and how to make money doing it." At PhyCor (9), adds Kimberly Purvis of New York-based Donaldson Lufkin & Jenrette, Joseph Hurts has "surrounded himself with a lot of smart people."

WHAT MAKES FOR A TOP PERFORMER

A look at the measures evaluated to determine the CEO Performance Index also shows that the companies that achieved the most rapid stock-price growth, such as ASM (1), Stratacom (2), and AGCO (10), also evidenced high combined performance in growing book value, cash flow, and earnings per share. On the other hand, the slowest stock-price growers on this list, such as Compaq, which dropped from 27 last year to 97 this year, ranked low in every measure except sales. Although Compaq was moving merchandise off the shelves, the rough-and-tumble personal computer business eroded its margins.

Other research conducted by Mitchell and Co. indicates an additional benefit to experiencing equally high performance in book value, cash flow, and earnings per share: This combination appears to attract the attention of the largest possible number of institutional investors. Rapid revenue growth rarely has this effect, except in the case of start-ups, such as Safeguard Scientifics, the public venture-capital firm that ranked No. 7 this year.

EXHIBIT II: MEASURING UP

What's the most effective way to benchmark a CEO's performance? CE
100 executives say:

Financial results (growth in revenues/earnings)
73%

Employee measures (results of satisfaction surveys)
43%

Shareholder rewards
41%

Performance for customers (satisfaction survey
results and account turnover rates)
39%

Strategic objectives
16%

Respondents also said the board of directors should focus on:

Financial measures
54%
Strategic objectives
46%
Shareholder rewards
39%
Performance for customers
22%
Employee measures
20%

Shareholders should look at:

Shareholder rewards
65%
Financial measures
39%
Long-term performance
15%
Predictable/consistent company performance
11%

Customers should measure CEOs by:

Product or service value
46%
Product and service quality
33%
Customer service and ongoing support
18%
Product innovation
11%

Employees should assess CEOs by:

How their job is providing personal growth and
career opportunities
72%

A quality work environment
37%

Compensation
28%

Security and growth of a competitive company
22%

Suppliers should evaluate:

Total relationship with the company
71%
Sales growth
21%
Receiving timely payments
19%

Communities should consider:

Community employment
43%
Community leadership
38%
Charitable giving
33%

Source: Mitchell and Co.
EXHIBIT III: IT'S ALL IN THE PROCESS

What management processes did CE 100 executives turn to in order to
stimulate shore-price growth?

Building a more entrepreneurial way of working
89%
Eliminating layers of management
65%
Total Quality Management
61%
Re-engineering
51%
Economic Value Added
49%

Source: Mitchell and Co.

WHAT'S KEY IN MEASURING A CEO'S PERFORMANCE

When measuring their own performance, the CEOs we surveyed say they favor a combination of factors, including financial results, employee measures, shareholder rewards, performance for customers, and strategic objectives (see Exhibit II). James Morgan of Applied Materials (28 on the CE 100; 20 on the CPI) says the best way to measure him is to see how well he has anticipated "transition points in his industry [semiconductors] and the needs of companies to capitalize." Peoplesoft's David Duffield (18, 44) has an even more personal test. "You never stop learning," he says. "I learned from my prior experiences that in the service industry, where software is intellectual property, the business is 100 percent people."

WHAT CEOS ARE DOING TO IMPROVE

CEOs say they are employing a range of tactics and measures to improve both their performance as managers and on Wall Street. They're building a more entrepreneurial way of working; eliminating layers of management; following the teachings of TQM; re-engineering functions, divisions, and whole companies; and looking into the principles of Economic Value Added (see Exhibit III).

More specifically, Morrie Abramson of Kent Electronics (62, 80) says, "We walk the talk. We espouse trust in our leaders to meet commitments that we have all agreed upon and empower them to make decisions to effect those results. There is a mutual trust - you have to recognize the risk, and that time and time again, you are going to be disappointed."

Jack Rehm of Meredith Corp. (87, 84) says, "About 10 or 12 years ago, we started focusing on new product development, especially with our magazines, and devoted a lot of time and energy to new concepts. We have had success using an entrepreneurial style that lets people develop ideas and launch them, leading to profitability. We delegate to let people feel responsible for the growth in their areas." Peoplesoft's Duffield adds, "Part of our value system is innovation. We encourage experimentation and new service initiatives. We let people do their own thing with some guidance to achieve the final results we want."

Discussing work style, Applied Materials' Morgan says, "We are the largest in our industry, and to manage on that scale we have developed the 5x5 process, made up of five business units that have global responsibility by account. We are the leading company in establishing partnerships with global high-tech companies." John Wood of Thermedics (54, 51) shared his experience in the same area. "We want to avoid the malaise that has stricken larger companies. that the larger a company gets, the more difficult it is to motivate employees. Thermedics forms a new competing business, offering incentives by spinning out so they have a company all their own. In this way, the good and bad performance is not reflected in the parent company's stock price."

EXHIBIT IV: CEO CONCERNS

Executives reveal where their strategic focus lies:

Maintaining financial results
41%
Having an adequate supply of new products/services
27%
Bolstering employee effectiveness
25%
Continuing company growth
18%
Maintaining competitiveness
11%
Adding technical expertise
9%
Dealing with the investment community
7%
Prospering despite the economic environment
7%
Handling government regulation
2%

Source: Mitchell and Co

Robert Shillman of Cognex (11, 40) notes it's critical that the people and the opportunity match. "We have been able to attract, motivate, and retain unique people who are bright and perseverant. Our motto is 'Work hard. play hard,' and people are rewarded when they perform well."

"The challenge," adds Thermedics' Wood, "is to attract strong talent in leadership, management, and technology." With more people, however, come new challenges. Lynn Fritz of Fritz Cos. (71, 89) explains, "We have more size to deal with since three years ago, and we are dealing with twice as many people. Mobilizing a work force of 7,000 can be quite daunting." Doctor Crants of Corrections Corp. of America (3, 47) observes that "making sure employees understand your strategy and their role is incredibly important. We do not think we can increase shareholder value unless we grow employee understanding. One measure of how well we are doing is substantial employee participation in our stock-purchasing program."

So, how critical are stratospheric stock-price gains in measuring corporate success? Respondents divide along lines reflecting how capital intensive their business are. Meredith's Rehm feels it's a key indicator. "The key to stock-price growth is performance," he says. "And we need to maintain superb performance; there is no substitute for that. With expectations high for the future, the investment community will expect us to grow at a similar rate over the next three years." Maintaining growth, says Applied Materials' Morgan, is important. "The key for us," he says, "is to continue to demonstrate performance and help investors understand the opportunities Applied Materials has for the Information Age." But Peoplesoft's Duffield, whose company is less dependent upon raising capital, shifts the emphasis. "Stock price reflects how people value you," he says. "And we watch it. But if our customers are happy, they are our best salespeople. They'll help us sell our products."

RELATED ARTICLE: RUNNING THE NUMBERS

Can CEOs really drive stock-price performance? The numbers say they can. Since 1992, the CE 100 - a set of companies that delivered superior stock-price gains over a three-year period with a single CEO in place - has cumulatively outperformed the benchmark S&P 500 Composite Index.

Provided you buy the portfolio at the end of the month the list is published in CE and sell one year later, the first four lists cumulatively are up 75.4 percent compared with the S&P 500 at 53.4 percent during the 12 months following publication.

To compile the latest list, covering 1993 to 1995, we tapped Zacks Investment Research's database of more than 5,000 public companies traded in North America and narrowed the field to companies that:

* Had the same CEO from 1993 to 1995.

* Were public from 1993 to 1995.

* Had a market value of its public stock that exceeded $500 million at the end of '95.

While the CE 100 will not always outperform the S&P 500 (as happened with the 1990-1992 list), the CE 100 Index has exceeded the track record of more than 99 percent of professionally managed portfolios since we began publishing the list in 1992, despite our not using debt leverage or derivatives to boost the return.

Adding appropriate debt leverage and derivatives would have expanded the returns to more than double the growth rate of the S&P 500.

In general, the high volatility of these stocks - most of which are smaller caps - dictates positive results when the stock market is strong (as occurred in 1995) and relative underperformance in years when the overall market is weak (as occurred in 1994). If the smaller-cap stocks are stronger or weaker than the overall market, this index also should be similarly affected.

The 1991-1993 list grew by 36.3 percent, while the S&P 500 grew by 22.7 percent for a full year; the 1992-1994 list rose 20.6 percent, while the S&P 500 expanded by 15.5 percent from May 31, through December 29, 1995.

From an investment perspective, if you only had bought the 31 stocks from the 1991-1993 list that also appeared on the 1990-1992 list, you would have earned a stock-price growth return of 45.7 percent rather than 36.3 percent by buying the whole list.

This result is about double the growth in the S&P 500 at 22.7 percent. For next year, you may wish to consider buying only the 37 repeaters from the 1992-1994 list that also appear on the 1993-1995 list.

Fourteen of the prior group of repeating stocks underperformed the S&P 500. If we could eliminate stocks, the returns been even higher. Looking at the lists from the last two years, we were able to develop a way to do this.

The indicated stocks to buy using this method are Applied Materials, Broderbund Software, Computer Associates, Linear Technology, LSI Logic, Oracle Systems, and 3Com.

However, this investment strategy provides only a small number of stocks with limited industry diversification. If those industries weaken, your investment returns probably would suffer in the 12-month period, as well. And if the market is falling when you read this article, you probably should wait until it levels out before purchasing shares.

RELATED ARTICLE: Advanced Semiconductor Materials

After years of difficulties, Advanced Semiconductor Materials exploded onto the high-tech investor scene in 1995, quite literally. Its stock tops the CE 100 with a stunning 3183.33 percent gain between December 1992 and December 1995, growth that analysts and investors alike attribute to CEO Arthur del Prado. Del Prado himself ranks third on this year's CEO Performance Index.

"Del Prado is one of the greatest visionaries of our time when it comes to the manufacturing of semiconductor equipment," says Tejinder Singh, an analyst at brokerage firm Unterberg Harris in New York.

For his part, del Prado explains that ASM's stock skyrocketed in 1995 because the company reported a profit for the first time in the fourth quarter of 1994. "This made a big difference in our stock price," he says.

Del Prado has spent the last decade building a global infrastructure and multiple product capability that analysts say is positioned potentially to dominate semiconductor equipment sales in the coming decade. For example, ASM is the only company in the industry that produces both front-end wafer processing and back-end assembly and packaging equipment. The industry is composed of such big names as Applied Materials, the Silicon Valley Group, and Novellus Systems. "The advantage is that we cover a larger area in which money is spent in this industry," says the chief executive. Clients include IBM, Intel, and Micron.

Also, del Prado, 63, has made sure his company is on the cutting edge with its products - he is now one of the leading producers of epitaxial wafer machines and is positioned as a major player in the manufacture of new vertical furnaces. "He is a hands-on, technologically oriented chief executive," says Leonard Sanders, an analyst at New York-based brokerage firm Needham & Co.

The Netherlands-born del Prado is taking advantage of the economies that international production and finance have to offer. His was the first company not to go public in its home country, choosing instead to launch ASM's first equity offering in the U.S. in 1981 instead of the Netherlands. Since then, an ASM subsidiary also has listed on the Hong Kong stock exchange. And ASM's manufacturing facilities gird the globe, including plants in China, Japan, the U.S., the Netherlands, and Malaysia.

Despite their apparent success, del Prado and ASM face huge challenges. Newly in the black, the company has to contend with capital-intensive costs of expansion and R&D on its balance sheet. Del Prado, meanwhile, made individual units operate on a profit-and-loss responsibility basis in 1995. He also improved communication between R&D groups to avoid research duplication, and implemented an R&D management board.

To avoid investing in dead-end technologies, del Prado has convened a customer advisory panel. "I want to make sure our technology road map remains on the right track," he says. "It is important for a quickly growing company to be imbedded well, because when you make choices, they had better be right."

The changes "seem to be working," says analyst Sanders. Singh agrees, and projects a stock price of $30 by the end of the year, up from about $11 currently.

Such a gain would please del Prado, who places increases in shareholder value as a top measure of the company's success, along with greater market share and technological innovation. Says del Prado, "we are one of the top 12 companies in semiconductor equipment manufacturing right now. By the year 2000, we want to be one of the top five."

- Ellen Leander

RELATED ARTICLE: AGCO

In the late 1980s, most executives would have dismissed the agricultural equipment manufacturing sector as barren, but not Robert Ratliff, chief executive of AGCO. In that age of FarmAID and free-flowing red ink, Ratliff perceived an opportunity. Thanks to his own fortitude, Ratliff, 64, is now the head of a $2 billion multinational, and investors couldn't be happier: The stock was up 629 percent in the three years ending December 1995. AGCO ranks No. 10 on this year's CE 100 Index, and Ratliff himself ranks No. 4 on the CEO Performance Index.

To what does Ratliff attribute his company's good fortune on Wall Street? It has something to do with the company's employee stock-purchase program, he says, which is "one of the most popular programs I have ever created." Shareholders "love it," he says, because they believe it motivates the officers to make decisions that will increase share price.

But AGCO's fortunes owe something to Ratliff's own vision. In the last eight years, AGCO has carved out a 10 percent market share in a field traditionally dominated by big boys such as Deere, Case, and Ford. The Duluth, GA-based company started life as Allis-Chalmers, an agricultural equipment manufacturer that was bought by German machinery maker Klockner-Humboldt-Deutz in 1985. Ratliff was hired in 1988, from competitor International Harvester, to stem huge losses. Within a year, Ratliff had the renegade division turning a profit. The German parent offered the division to Ratliff and his management team in 1990, a year after the fall of the Berlin Wall.

Unable to get traditional buyout financing because of the difficulties the sector was facing - one banker actually laughed in his face, says Ratliff - the CEO devised a unique way to finance the purchase. He sold the company's receivables to Whirlpool Financial at a discount, and used the cash to pay off the German parent. "We bought the company with its own money," says Ratliff.

He hasn't looked back. Ratliff financed a $186 million string of purchases during the early 1990s by both traditional and nontraditional means, took the company public in 1992, and then swallowed Massey Ferguson in 1994 for $328 million, effectively doubling the size of the company. "It took vision on Ratliff's part to see what could be done with this company," says James McCann, analyst at New York-based Merrill Lynch. "and he has done a terrific job acquiring and integrating companies and strengthening the dealer network."

Indeed, a key part of Ratliff's vision is his dealer network, and he retains close ties to it. The CEO spends about half his time visiting dealers, handing out cards with his telephone number. And he answers his own telephone. Of AGCO's structure, Ratliff says: "There are just four and a half layers between me and the customer. This lack of bureaucracy makes us action-oriented. We can make decisions quickly. This lean organization also keeps his cost-structure below that of his competitors, who are still in the throes of downsizing.

For the next couple of years, Ratliff plans to apply the strategy that made him successful in the U.S. to overseas markets. "Although AGCO has grown successfully through acquisition in the U.S., such acquisitions are much more difficult to find now," says Diane Graboski, an analyst at New York-based Dillon Read & Co. Emerging markets - where Massey Ferguson has some strength - provide the highest growth potential, she adds. Overall, analysts say that Ratliff's powerhouse should continue on its upward course. (Incidentally, Ratliff just signed a new, eight-year contract with the company, according to AGCO.) Graboski predicts the stock will hit $30 per share in 1996, while McCann puts the price at $35, up from about $24 currently.

The gains won't just make investors happy - but those employees vested in the stock-ownership plan, as well. How does Ratliff know? He says a Bloomberg stock quote terminal, which sits in the company's lobby, is more frequented than the water cooler.

- E.L.

RELATED ARTICLE: PhyCor

When Washington, DC, was awhirl in its now-aborted attempt to restructure health care, Joseph Hutts, chief executive of PhyCor, was quietly orchestrating a revolution of his own. Hutts has spent the past several years building his Nashville, TN-based company into a unique clinic management system, a partnership designed to relieve physicians from administrative business requirements and allow them to concentrate on the practice of medicine.

Wall Street has taken notice: PhyCor ranks No. 9 on this year's CE 100 Index. Hutts himself ranks No. 65 on this year's CEO Performance Index.

Hutts, 54, attributes PhyCor's success in part to the rally in health-care stocks generally. But he says his company has rallied more than average because investors view its approach as more compassionate and medicine-oriented than HMOs. It is also the largest and most visible company of its kind. Hutts started PhyCor in 1988 after 10 years with the Hospital Corp. of America. "I saw that it was a critical time for health care," says the CEO. His organization was the first to consolidate clinic assets and operations as well as provide money and management assistance to the clinics. Basically, the company acquires or leases clinics, and then provides business management, often improving efficiencies and increasing the range of services offered. "He invented an industry," says Eleanor Kerns, an analyst at Alex. Brown in Boston. Competitors now include American Physicians, Medpartners, and Physician Reliance. But doctors continue to be drawn to Hutts' common-sense approach to health-care cost management, and the number of clinics owned by the company blossomed to 31, with more than 1,850 physicians in 19 states by 1995. In addition, the company's independent practice associations business now has more than 5,700 doctors in 13 markets. Hutts' formula for success - strong relationships with member physicians and a corporate culture based on core values - has paid off handsomely. The stock price skyrocketed 634 percent in the three years ending December 1995. Most analysts attribute its success directly to Hutts' unique philosophy. "His personality and vision have a lot to do with PhyCor's success," says Andrew May, a partner at New York-based brokerage firm Dillon Read & Co.

Hutts, described by analysts as very religious, says he "consciously built a culture that focuses on relationships," at PhyCor. Internally, that meant hiring people who shared his vision. Says the CEO, "We talk a lot about just doing what is right, and our people basically know what is right. We operate from a common base of values - we try to operate with absolute integrity."

Externally, "building relationships" meant helping physicians navigate the shifting world of health-care economics. "PhyCor has really earned the respect and trust of the physicians it works with," says May. Indeed, it is the number and quality of these relationships that Hurts uses to measure the extent of his success. But keeping relationships intact as the company continues to evolve may prove to be the biggest challenge Hutts has faced yet.

"Keeping Hutts' vision is going to be more and more of a challenge as the company gets larger," says Kerns. The company's growth is expected to continue to explode, in part because less than 10 percent of the nation's 600,000 physicians are part of any similar program. Earnings per share are predicted to rise 45 percent in 1996, and revenue growth at existing clinics is expected to continue its double-digit expansion. Hurts also is planning more acquisitions of clinics in the coming year; to make that possible, PhyCor retired a substantial amount of bank debt after issuing a $200 million convertible debenture in mid-February with a coupon of 4.5 percent. But Hutts says he is ready for the challenge. "We have had the chance to build a real reputation and momentum," says Hutts of his expanding slice of a restructured health-care pie. "This is one of those opportunities that comes along only once in a generation."

-E.L.

Donald W. Mitchell is chairman and chief executive of Mitchell and Co., a financial and management consulting firm in Waltham, MA. He is also chairman and CEO of Outstanding Chief Executive Officers and Share Price Growth 100, collaborative research organizations directed by leading executives and their companies. Additional research for this article was conducted by Mitchell and Co.'s senior consultant, Amy Feather, and by free-lance writer Jonathan Burton.