An excellent and timely article recently appeared in CNN Money–one that offers valuable insight for equities investors. Here’s the link: Want top stocks? Bet on brand names. As you can see from the title, the author, Scott Cendrowski, believes that shares of companies selling brand name consumer goods have been, and will continue to be great long-term investments. He backs up his optimism with solid analysis. Here are the highlights:
- Brand names have prospered in recent years, in the face of a worldwide economic downturn. This is because we continue to purchase our favorite foods and other consumer staples in good times and bad. When money is short, we might cut down on restaurant dining and travel; but we don’t give up our cheerios, our beer (or wine, or whiskey), or our ice cream. We don’t stop buying toiletries, pain relievers and cleaning products. The evidence-the S&P Consumer Staples Index outperformed the S&P 500 over the last 22 years by an amazing 60 percent.
- The market for brand names is growing. In just three years, by 2015, the number of middle class consumers living in Asian countries will equal the number living in Europe and North America combined. The companies selling the strongest brands have been doing business (and building demand) in Asia and other emerging markets, for decades; and they are poised to capitalize on a strengthening middle class in these burgeoning economies.
- Brand name consumer products are often stable and predictable. Consumer goods companies can foretell both their costs and their sales with a very high degree of reliability. Hershey Co., for one, can predict its annual numbers within a 0.5 percent margin. This is because Hershey and other companies who supply us with our “favorite” things have loyalty and buying behavior data built up over decades. In a sense, they are “tortoise” performers-less than glamorous, but strong and steady.
Companies with strong brands have another desirable strength-they can raise prices when necessary without worrying too much about a dip in sales. They have pricing power because their customers are not fickle. When you add regular dividend payments to all these pluses, it’s easy to see why brand name stocks offer good prospects for solid returns.