There are plenty of reasons to presume that California must be a bad place to do business. The Tax Foundation says the state’s tax structure is the third worst for business in the U.S. Forbes ranks California’s business costs fifth highest among the 50 states and its regulatory environment the eighth most burdensome.
Why then does the market, where buyers and sellers determine relative value, show otherwise?
California-based companies surpass their competitors in the U.S. by most measures of performance favored by investors.
Since January 2011, when Edmund G. “Jerry” Brown Jr., became governor for the third time, the 63 publicly traded California companies in the Standard & Poor’s 500 produced the best total return among the five states with the largest populations. California companies in the S&P 500 delivered returns of 134 percent; the closest big-state challenger was Florida, whose S&P companies had an 82 percent return, according to data compiled by Bloomberg. Texas-based companies delivered 52 percent during the period.
Companies domiciled in California also outperformed the S&P 500 during the past four years by a margin of 23 percent. Among the California industries making the state No. 1 in business are health care, returning 267 percent, consumer staples (302 percent), specialty pharma (235 percent), energy (30 percent) and biotech (333 percent).
# 1 Technology and Manufacturing
The revenue from technology companies may be the most revealing measure of how successfully California business deals with disruption. As of this month, the trailing 12-month revenue of technology companies in the state was $715 billion, or 52 percent of technology company sales in the U.S. New York was No. 2 with 11 percent, followed by Washington’s 7 percent, Massachusetts’ 4 percent and Virginia’s 3 percent.
As unemployment declined to 7 percent in December from a peak of 12.4 percent in 2011, California’s growth was substantial enough that during the 24-month period ended Sept. 30, 2014, the jobless rate fell the most of any state. This helps explain why California remains the No. 1 state for manufacturing, producing $239 billion, or 12 percent of all manufacturing in the U.S., according to Bloomberg data. Texas is No. 2 with $233 billion.
Among the 122 U.S. companies in the Bloomberg Americas Clean Technology Index, 26 are based in California. These publicly traded companies spent an average of $118 million, or 25 percent of their sales, in research and development. That was the most in U.S. industry last year, when 9.4 percent was the average.
California’s greater commitment to clean technology is resulting in more jobs, with a median rate of employee growth in clean tech jobs during the past 2 years of 7.5 percent compared with 2.3 percent for similar U.S. companies. Analysts also forecast a 70 percent gain for the California clean tech companies in the next 12 months, compared with 33 percent for the industry. The lead in innovation makes analysts more bullish on companies domiciled in California, as reflected in their average 12 month forecast of 24 percent return potential compared with 19 percent for the Russell 3000.
Excerpt from Bloomberg View, By Matthew A. Winkler. For full article, click here.