3 Surprising Brands to Invest in Today
Jul 24th 2012 1:45PM
Updated Jul 24th 2012 1:52PM
Almost any discussion of a retail stock throws around the terms "competitive moat" or "brand strength." Warren Buffett has made it clear that he views a wide moat as one of the most important aspects of a company. If the product your company makes is easily replicable, and if your brand adds no value to the final product, then why would anyone buy from you? But how much can investors rely on brand to find good investments? Let's look at history to see just how important brand is.
Setting the bar
Every year since 2006, Millward Brown has released its top 100 brands listing, taking the implied value of global brands and ranking them. The value the brands offer has changed drastically over the years, though the brands themselves haven't moved around too much. In 2006, the top brand was Microsoft (NAS: MSFT) with a brand value of $62 billion. In 2012, Microsoft has fallen to fifth place, and the new top dog is Apple (NAS: AAPL) , with a brand valued at $183 billion.
While the value change in first place is impressive, it's dwarfed by the increase in Apple's brand value over the same period. In 2006, it was given a value of $16 billion. The change from 2006 to 2012 represented a 1,045% increase in value. Over that same period, the stock price rose 880%. While it's clearly not a direct correlation, it seems like a good metric to watch.
Microsoft's stock performance over the same period shows a 26% gain. The value of the brand has also risen -- up to $77 billion in 2012. That's a 24% increase from its 2006 figure. So if we can see these two stocks succeeding in line with their brands, maybe we can look at a few of this year's winners to find the investment winners as well.
Old brands making their mark
One of the most interesting things to me is that some of the biggest risers this year are companies that have been around for a long time. It's one thing to have a new company like Facebook see a 74% increase in brand value. It's an entirely different thing for Visa (NYS: V) to increase its brand value by 34%. The payments company jumped five ranks this year with a brand value of $38 billion.
Visa's stock price has risen 37% over the past year, and the company turned in a stellar result last quarter. The company posted $1.1 billion in net income, a 23% increase on last year. Third-quarter earnings are announced tomorrow, and analysts are expecting a 15% increase in earnings per share to $1.45.
Visa's main competitor is also rising quickly through the brand rankings. MasterCard (NYS: MA) jumped an incredible 31 spots in this year's ranking, ending up at No. 29 with a brand value of $21 billion. The stock has fared well, too. Over the past year it's increased 29%, and is now trading at a forward P/E of close to 16. Clearly investors are starting to see the value of being a processor of debt transactions as opposed to a holder of debt.
The third company I want to talk about surprised me the most. Starbucks (NAS: SBUX) rose 20 spots this year to the No. 42 position. The shock for me came from the company's ubiquitousness. How can a company with more than 17,000 locations grow so quickly? China's a big part of the answer, as Starbucks is on track to operate 1,500 stores in China by 2015. In terms of global branding, being near the top means having a presence in China.
The bottom line
Just picking a company to invest in because it's doing well on brand is not a great long-term strategy. There have been some companies on the list that have had horrific things happen to them since they appeared. For instance, Barclays made the cut through last year, only to disappear in the most recent release.
But looking at brand can lead you to wonderful companies. In part, a focus on brand ensures that you're investing in companies that you know. Part of that comes from the nature of branding, that it's more important further up the food chain. The widget in my iPod isn't branded because I never see that piece work. The iPod is branded because then I can attach value to it. If you're buying brands you know, then you're most likely buying companies that you understand.
With so many strong brands, it can be hard to find exactly the right rising star at exactly the right time -- especially since some smaller brands escape unnoticed in a global survey, even if they're doing well locally. The Motley Fool's top stock for 2012 is one of those companies. While it didn't show up on the brand list, it's certainly making waves in its part of the world. You can get all the details on this excellent brand in our free report. Get your copy today.
Also, to understand more of what has made Apple a top brand, read about the company in our new premium research report on Apple. In it, our top technology analyst walks through the key aspects of the Apple story, including both opportunities and risks facing the company.
The article 3 Surprising Brands to Invest in Today originally appeared on Fool.com.Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Microsoft, Apple, MasterCard, and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks, Microsoft, Apple, and Visa, as well as creating bull call spread positions on Apple and Microsoft and writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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