Advertising Age magazine ran an article last November about the hottest brands in America and the people behind them. Some are small businesses few have heard of but many are developed by large publicly traded corporations. I'll look at the brands whose stocks trade on American exchanges. By the end, you'll know whether to invest in the entire group or in several select companies. Either way, it's important to understand that today's stars quite possibly are tomorrow's dogs. Tread carefully.

IN PICTURES: 6 Major Credit Card Mistakes

Best of the Brands
Out of 40 brands mentioned in the article, 18 are from companies publicly traded on American exchanges. Procter & Gamble (NYSE:PG) has two brands on the list (Cover Girl and Pepto Bismol) and thus the portfolio is comprised of only 17 companies. In terms of diversification, three sectors are represented with four companies from technology, six from services and seven from consumer goods. I personally wouldn't have a problem leaving out financials, health care and basic materials from the portfolio but many would. Thankfully, diversification is not the primary purpose of this article.

Top And Bottom Three Performers - America's Hottest Brands

Company YTD Return
Diamond Foods (Nasdaq:DMND) 24.5%
Panera Bread (Nasdaq:PNRA) 19.5%
Viacom (NYSE:VIA.B) 19.4%
Coca-Cola (NYSE:KO) -5.6%
General Mills (NYSE:GIS) 0.7%
Walmart (NYSE:WMT) 0.9%

Reasonable Performance
In the table above, I've included the three best and worst performers. As a group, the portfolio has outperformed the S&P 500 by 260 basis points year-to-date. If you exclude Coca-Cola, which only made the list because of its minority investment in the coconut water drink Zico, the return is actually one full percentage point better at 10.5%. It's not spectacular but you'll definitely sleep easy at night.

All-Cap Performance
The top three performers in the portfolio are Panera Bread, Diamond Foods, and Viacom. Interestingly, one is a small-cap, one a mid-cap and one a large-cap. I'm a firm believer that your portfolio should represent every size of company, not just the biggest. The reason: You never know who your stars are going to be at any given time. You limit your performance by focusing solely on larger companies or overdoing risk by concentrating on smaller ones. In this particular instance, large-caps comprise 70.6% of the holdings making it very similar to any large-cap fund. That's not a terrible thing. If I did have a concern with the portfolio, it would be the lack of mid-sized companies in the mix. Prima Capital did a study from 30 years of data that shows mid-caps outperformed both small- and large-cap companies by about 2% annually. This is too significant to ignore.

The Top Three
I like all of the top three mentioned above, but I'd probably have to go with Diamond Foods as my favorite. I think CEO Mike Mendes is doing a fabulous job transforming the former walnut cooperative. Its recent acquisition of Kettle Foods is but one example of his vision for a bigger and better business and, most importantly, its working. I'm not as familiar with Panera Bread but their stock did grow 35% annually over the last decade and same-store sales continued to grow during the recession. As for Viacom, its strong first quarter earnings demonstrates advertising revenues are recovering. Unfortunately, its Paramount Pictures film-making subsidiary is a money loser and drain on overall profits.

Bottom Line
Even though it's possible some of the stars of today will fade away, one thing is clear - investing in America's hottest brands has more upside than down. (The glitz and glam of Hollywood could help put some more glitz in your pocket. For further reading, see Analyzing Show Biz Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free! Viacom Q1 results

Related Articles
  1. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  2. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  3. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  4. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  5. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  6. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  7. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  8. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  9. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  10. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!