Give Credit Where It’s Due: Moody’s
In 1900, John Moody decided it was a good idea to start a company that compiled statistics on stocks, bonds, and bond ratings. Standard & Poor’s (NYSE: SPGI) had been around since 1860, but having a monopoly on such important information can be risky. Many of the people running big companies then aren’t interested in taking on more risk than they need to, and it’s the same today too.
Source: Wikipedia
This was an opportunity for young Moody to build his business in a space that was growing as fast as the country was then. By 1903, Moody’s Manual was a national publication. The crash of 1907 inspired the Federal Reserve system, and that meant even more interest in keeping current on credit and business statistics, but Moody had to sell his business after the crash.
In 1909, he returned with a product specifically focused on railroad bonds. Railroads were booming, and they took a lot of investment, not only for tracks, but all the land the tracks ran on. Teddy Roosevelt was president and the Panama Canal was underway. United States Steel Corporation founded Gary, Indiana to produce steel for a fast-growing nation.
Granted, WWI was on the horizon, but the US was already in the midst of its own expansion, physically as well as economically. That meant there were a lot of opportunities that companies were interested in exploiting. It also meant that more and more businesses and financial institutions were looking to separate the real opportunities from the shady ones. It was a great time to be in the ratings and business statistics business.
From Then to Now
Over the decades, Moody’s (NYSE: MCO) grew, and by the 1960s, it was sold to Dun & Bradstreet (NYSE:DNB). By 1999, DNB spun MCO off as a separate publicly traded company.
Today, MCO, Standard & Poor’s, and Fitch are considered the Big Three ratings agencies. Their business as ratings services is now global. Each has their own rating system, but generally speaking, they all have relatively uniform standards when it comes to building their ratings.
Also, since deriving those ratings take enormous amounts of research, they all provide research and consulting services for the buy side and sell side companies.
Source: Andalou Agency
Given all the recent global challenges – from the pandemic to the economic sanctions put on Russia, to the destruction of the Ukraine nation, to the supply chain crisis that has continued across the world – it’s never been more important for companies to understand what’s happening. Moody’s is a key source of that information, especially for institutional investors.
Source: Seeking Alpha
A New Twist: ESG
Moody’s has continued to find new opportunities as well.
The expanding ESG investing sector, which focuses on how to value companies and their efforts to be more environmentally, socially responsible, as well as be more diverse in leadership and board positions, is a growing interest to many institutional investors.
Source: Ceres
Moody’s recently bought a company that specializes in developing ESG statistics and research. That means Moody’s is well positioned for growth now, as well as long into the future.
MCO stock has had a bit of setback year-to-date, down 27%, but take a look at this 12-year chart.
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