It has been previously suggested that investors should follow one-time Fidelity Investments money manager Peter Lynch's example and invest in everyday companies - those you are most familiar with, as you use their products or services on a daily basis. The top American brands in the Business Week/Interbrand Global 100 ranking outperformed the S&P 500 between 2000-2008 by 59.52%. $10,000 invested in the top American brands at the beginning of 2000 was worth $13,140 at the end of 2008. This compares very favorably with the index, which saw its $10,000 shrink to $7,190 over the same period. Opportunities exist right under your nose. (For more information, read Pick Stocks Like Peter Lynch.)
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America Still Has Great Brands
While the rest of the world is catching up, America still has the most brands on the Global 100 list with 52. Included in the group are financial services stinkers AIG (NYSE:AIG), Citigroup (NYSE:C) and Bank of America's (NYSE:BAC) Merrill Lynch division, as well as big-three disaster, Ford (NYSE:F). Curious whether the stellar stock performance of these superstar brands translates to the retail industry, I compared the S&P 500 performance for the last nine years with the performance of America's top 10 retail brands. In order to qualify, a brand's stock must have traded for the entire period. Unfortunately, the retail brands didn't fare nearly as well. Over nine years, the top 10 retail stocks in America dropped 31%, three percentage points worse than the S&P 500 and 62% worse than America's top global brands. It appears globalization definitely is good for shareholders. (The key to survival for many financial institutions could be to efficiently serve a global customer base. Read The Globalization Of Financial Services for more.)
How to Pick Winners
Back in 2001, when Interbrand and Business Week released their first ranking of the top 100 global brands, the U.S. had 62 names on the list. The five lowest ranked American brands (those publicly traded) included Pampers - in the Procter & Gamble (NYSE:PG) family, Jack Daniels – part of Brown-Forman (NYSE:BF.B), Starbucks (Nasdaq:SBUX), FedEx (NYSE:FDX), and Ralph Lauren (NYSE:RL). Only Procter & Gamble, Starbucks and FedEx remain today. Interestingly, FedEx dropped off the list for several years until reappearing in 2008. What does this mean? The longer your brand stays on the list and the more spots it moves up in any given year is an indication the brand (and, by extension, the company) is likely doing well. When this happens, the stock price is sure to follow.
The Bottom Line
In the 2008 report, five companies saw their brand values increase by 10% or more, with Google's (Nasdaq:GOOG) jumping 43% to $25.6 billion, making it one of the top 10 most valuable brands in the world. Unfortunately, its stock didn't fare nearly as well, dropping 55.5%, 17% worse than the S&P 500. As I said in the previous paragraph, when a company's brand value increases, its stock price will surely follow. Year-to-date (YTD), and just like clockwork, Google's stock is up 20.2%, 27.8% better than the index.
The second highest increase in brand value in 2008 came from Apple (Nasdaq:AAPL), up 24% to $13.7 billion. Meanwhile, its stock dropped 56.9%, 18.4% worse than the index. Not surprisingly, its stock is up 38.8% YTD to close of April 6 - 43.5% better than the index. The moral of the story: If you want to benefit from everyday investing, the first place to look for winners is the Global 100. The numbers speak for themselves.