NEW YORK (MONEY Magazine) - To celebrate its 30th anniversary, MONEY Magazine asked Ned Davis Research to find the 30 best-performing stocks since 1972.

Below MONEY outlines the seven key lessons to be gleaned from the all-star list.

With fraud seemingly run amok in corporate America, there's something heartwarming about many of the names on our 30-year list. "These are companies with character," Vanguard founder John Bogle says of the group.

Southwest, Wal-Mart, Walgreen, Hershey and others have rich histories of treating their employees well, giving back to their communities and, for the most part, placing a higher priority on running a good, honest business than presiding over a hot stock. (Southwest's Herb Kelleher once said that his top priorities were his employees, customers and shareholders -- in that order.)

While too many U.S. companies in recent years have fallen into the habit of repeatedly using "one time" write-offs to hide losses and inflate operating earnings, our top 30 hold themselves to a higher standard: Their average write-off percentage (write-offs divided by operating earnings) is 9 percent for the past three years, compared with a 33 percent average for the S&P 500.

Also in this series 30-Year Super Stocks 7 Stocks: The Contenders Track the Dow: 30-Year timeline

Also notable is the correlation between our list and a recent "quality of earnings" ranking of S&P companies by Merrill Lynch. (Merrill says high-quality earnings are supported by comparable cash flow and are not dependent upon high debt loads or artificially low tax rates.)

Southwest, Wal-Mart, Walgreen, Intel and Sysco -- stocks whose 30-year returns rank first, second, third, fourth and 16th on our list -- came in second, third, fifth, 10th and sixth, respectively, in Merrill's survey.

Consider Wal-Mart's record. In the fourth quarter of 1995 the retailer saw its consecutive earnings-growth streak end at 99 quarters after net income came in $60 million short of the prior quarter's $1 billion.

At the time, naysayers claimed it was the beginning of the end for Wal-Mart's run as a premier growth stock. But knowing what we now do about how easily companies can massage their earnings -- and the dire consequences when it's taken to an extreme -- Wal-Mart probably deserved plaudits, not criticism, for allowing the streak to end one quarter shy of 100.

There's little doubt that Wal-Mart chief executive David Glass could have instructed his financial managers to crunch the numbers a little differently to come up with the mere 4 cents a share needed to keep the streak alive.

Then and now: Are price increases outpacing inflation? minimum wage Gallon of gas (in NY) Washington Post Television Yankees ticket Corvette Movie ticket Bob Dylan album Postage stamp Pair of Levi's jeans     INFLATION ADJUSTER   How much would: $ in: 1913 1914 1915 1916 1917 1918 1919 1920 be worth today? Result: $

Wal-Mart executives visited with U.S. Trust's chief investment officer, Fred Taylor, that very week. Taylor remembers coming away from the meeting so impressed with Wal-Mart's integrity that he ended up adding to his firm's position in the retailer.

Says Taylor, "Businesses that are good stewards -- those that tell the truth, that treat their employees and their customers and their communities well -- are going to be better stocks over the long run. There's no doubt in my mind about this."

Again, we understand that this runs contrary to most stock-picking advice -- even some of the advice offered by this magazine. But if you're a truly long-term investor, as opposed to someone with a time horizon of less than 10 years, our list makes a case that macroeconomic trends are overrated when it comes to selecting stocks.

Had you invested in the hot parts of the early 1970s economy, you would've wound up in pharmaceuticals or Big Oil. ("Everyone thought oil was going to $100 a barrel," Taylor recalls.) Yet not a single oil stock and only two drug stocks -- Forest Laboratories and Abbott Laboratories -- made the list.

"The more I look at it, the more convinced I am that stock picking should be bottom-up," says Third Avenue Value's Marty Whitman, one of the few fund managers old enough to have been in the business in 1972. In other words, don't look top down for broader trends in the economy; rather, look for good corporate fundamentals.

The flip side is the numerous companies on the list hailing from notoriously tough industries. Southwest is the prime example, as are the retailers: for every Wal-Mart, Walgreen, Circuit City and Kroger, there are dozens of Kmarts, Eckerds, Silos and A&Ps that fall into oblivion.

So what distinguished the companies on our list from their many failed rivals? Well, to put it simply...

Take Nucor, a company that management guru Jim Collins highlights in his recent bestseller "Good to Great." Nucor had to contend with the same declining steel prices and increasing foreign competition that drove Bethlehem Steel and National Steel into bankruptcy. (Indeed, steel may be the only industry in America whose sickliness rivals the airlines'.)

But perhaps because Nucor got into the steel business late in its life -- the company began making steel in the 1960s to provide material for its steel joists business -- it was not wed to the outmoded procedures of its rivals.

For example, rather than locate Nucor's mini-mills in traditional steel country, longtime CEO Ken Iverson set up shop in farm states like Indiana and Nebraska.

"They didn't want unionized steelworkers," Collins, a former Stanford University professor, says in an interview. "Nucor located in farm country because it figured it could teach steelmaking to farmers but couldn't teach a farmer's work ethic to steelworkers."

The hard work was rewarded by a generous compensation system that put a premium on productivity and teamwork. The ethic was reinforced by a management culture among the most egalitarian in corporate America. In sharp contrast to Bethlehem execs, with their lavish offices and perks, Nucor's 25-person management team worked out of dingy headquarters "the size of a dental suite," according to Collins.

Executives weren't eligible for the $2,000-per-child college tuition stipend offered to steelworkers. When the 1982 recession hit, workers' pay was cut 25 percent, compared with 75 percent for CEO Iverson and other top managers.

Such practices engendered fierce loyalty in Nucor workers -- a common trait among many of the companies in the top 30. In Nucor's case this loyalty allowed the company to keep its work force nonunion, but that's almost besides the point. The story is strikingly similar at Southwest Airlines, even though most of Southwest's work force is union. "I used to have my students go to the San Francisco airport to compare how long it takes Southwest to turn around a plane vs. how long it takes a major airline like United," says Jeffrey Pfeffer, a Stanford professor who studies organizational behavior. "It takes the majors more people and twice as long to turn around the very same aircraft."

The implications of this for investors are huge, because as the 30-year returns demonstrate, these organizational and cultural advantages are far more enduring and harder to duplicate than more traditional corporate advantages like new drug discoveries in the pharmaceuticals business or technological breakthroughs in the computer industry.

While retail is anything but a fail-safe industry, its strong showing in the top 30 is hard to ignore. Retail accounts for less than 10 percent of gross domestic product, yet the sector yielded seven of the top 30 stocks (23 percent). While this could be a fluke, we think there's a legitimate lesson here: If you're an investor who likes to swing for the fences, there's something to be said for eyeballing retail.

As tough a business as retail is, the odds of a company's maintaining extreme success seem to be somewhat higher here than in other industries. Anita McGahan, a management professor at Boston University, thinks it has something to do with the corporate culture issues discussed above. Since margins in retail are so low, success hinges on highly efficient operations and good management -- the very advantages that are most sustainable. Adds T. Rowe's Testa, "It's a very, very big country, so if you have a good idea, there's a lot of room and a lot of time to roll it out."

Also, given the rapid rate of suburbanization over the past 30 years, it's hardly surprising that many of the top retail stocks on our list were pioneers of the big-box superstores that offer more choices and amenities to affluent suburbanites.

Of course, these same demographic changes that so benefited the likes of Circuit City and Kroger signaled the end of an era for downtown department stores. It could be that the reason there are so many retailers on the list is that demographic changes create unique opportunities for upstarts to displace established players.

Whereas most of the companies that dominated oil, autos and drugs 30 years ago are still going strong today, there's been a complete changing of the guard in retail.

And it continues today as fast-growers like Chico's exploit the changing fashion needs of aging baby boomers, while at the other end of the age spectrum, Hot Topic takes advantage of the growing purchasing power and fashion sense of teens. Of course, very few of the upstarts grow up to be a Circuit City (or even a Chico's), but what's important is that they have a chance in retail -- something less true of other industries with higher barriers to entry.

General Electric and IBM are not on this list, while Walgreen and Hershey are. This tells us that companies that remain focused on a single core business have a better chance at long-term success than those that diversify or shift from business to business. "Doing one thing well is hard enough," observes Vanguard's Bogle.

Gary Kelly, the chief financial officer of Southwest, agrees, saying that sticking to the original business plan has been a huge part of Southwest's long-term success. "We could have acquired other airlines," Kelly says. "We could have taken on other equipment types. [For efficiency, Southwest flies only 737s.] But we decided early on that avoiding fads and developing a brand that's very clear has enormous value, both to employees and to customers."

Indeed, whenever the companies in the top 30 stumbled, it almost always coincided with an acquisition or new venture far afield from their core businesses. Home builder Pulte Homes, for example, tripped up with ill-timed expansions into Mexico and Argentina, while tax preparer H&R Block has been hurt lately by losses at discount broker Olde, which it purchased in 1999.

Compare the Walgreen story with that of Eckerd, a drugstore chain that was once neck and neck with Walgreen. Whereas Walgreen focused all of its energies on becoming the most profitable neighborhood drug chain -- figuring correctly that convenience and proximity would encourage repeat visits -- Eckerd chose diversification, making a variety of ill-advised acquisitions, such as American Home Video in 1981. By the early '90s Walgreen's revenue was twice that of Eckerd.

Though not in the way you might think. It matters most when well-run Old Economy companies use technology opportunistically to widen their lead over the competition.

That's what Nucor did when it developed steelmaking techniques that greatly reduced the cost and time of production. It's what Kroger did when it began using the earliest bar-code scanners to expedite checkouts. And it's what Walgreen did when it became the first chain to link all its pharmacies via a satellite-communications system, allowing customers to refill prescriptions at any location -- a huge advantage for a chain built around convenience.

Progressive is another technological opportunist. It was the first auto insurer to offer policies online. More important, it was an early adopter of "credit scoring" in insurance, investing far more heavily than its competitors in what is essentially data analysis.

Progressive found, for example, that car owners with histories of late auto payments were more likely to be involved in accidents than those who paid promptly. "The company is mad for data," says analyst Todd Bault of Sanford C. Bernstein. "They will analyze their data to death."

Not every success story has implications for future stock picking. Consider the tobacco companies on the top 30 list, UST and Philip Morris: In an ironic twist, all those anti-tobacco lawsuits and federal restrictions on advertising have served to protect established brands like UST's Skoal and Philip Morris' Marlboro by discouraging new competition.

Likewise, defense contractors General Dynamics and Northrop Grumman have powerful allies in Congress and the Pentagon who want to ensure that the major weapons manufacturers always have enough new business to keep them occupied -- just in case. Few other companies have businesses with so many built-in advantages, which is why it's so hard to apply lessons from them to any other stocks.

Much the same can be said of the No. 4 stock on our list, chip giant Intel. As great a company as Intel may be, its success in the computer industry is such a cautionary tale that the odds of it being replicated seem slim.

For years, Intel was able to squeeze 50 percent gross profit margins out of what's essentially a commodity business because it persuaded computer makers to go along with its Intel Inside branding campaign.

The Intel brand grew so powerful that Compaq, Hewlett-Packard and others had little choice but to purchase their microprocessors from Intel. Today no industry would allow itself to become so beholden to a single supplier -- something Intel itself is discovering as it struggles to enter the communications-chip field.

Maybe the only long-term lesson to be learned from the likes of Intel and General Dynamics is that Intel and General Dynamics have had a lot going for them. But given their spectacular market-trouncing history these past 30 years, that's probably lesson enough.