I happened to be looking through the June issue of Entrepreneur Magazine when I read that between 2005 and 2010, 214 home-related magazines were launched in America. This is a staggering figure when you consider the number of magazines disappearing from the publishing landscape in recent years. It got me thinking about advertising spending and those who do the most. This article is about the top 50 ad spenders in America. From it, 33 companies that trade on either the NYSE or Nasdaq can be assembled into a very professional, large-cap portfolio. Whether it's worth it is another story.
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The Top 5 Spenders
Approximately $2.08 billion was spent in 2009 by the top five magazine advertisers meeting the stock exchange requirement discussed in the opening. Procter & Gamble (NYSE:PG) was number one at $949 million. The 33 stocks in this consumer-goods-dominated portfolio spent a total of $5.2 billion advertising in magazines in 2009 and P&G alone accounted for one-fifth. It looks to have been a worthwhile investment, however, as its third quarter sales increased 7% and net earnings remained the same at $2.59 billion despite increased ad spending, reduced prices and a number of healthcare charges. Despite the positive, its stock really hasn't done much this year, up 1.2% year-to-date.
Adspend Portfolio and Top Five Spenders
|Company||YTD Return||5-Year Return|
|Procter & Gamble (NYSE:PG)||1.2%||15%|
|Johnson & Johnson (NYSE:JNJ)||-7.5%||9.4%|
|Unilever PLC (NYSE:UL)||-13.2%||28.5%|
|33 Stock Portfolio||1.31%||1.26%|
Buffett Spends Freely
Number 18 on the list of top 50 magazine advertisers is Berkshire Hathaway (NYSE:BRK.A). Often thought of as a conglomerate with just Warren Buffett and Charlie Munger running the show, it's clear that its many businesses spend freely on advertising to generate additional revenue. Buffett once again proves why he's the master allocator of capital. He could just as easily put a cap on ad expenditures but why would he when most of his investments are performing adequately.
The top three stocks in the Adspend portfolio over the past five years are Church & Dwight (NYSE:CHD), Estee Lauder (NYSE:EL) and Unilever PLC (NYSE:UL), which saw annual returns of 11.9%, 9.2% and 8.4% respectively. The three worst performing stocks are Sprint Nextel (NYSE:S), Revlon (NYSE:REV) and General Electric (NYSE:GE). They averaged an annual loss of 18.1%. Perhaps it's time for a rebound. Sprint and GE are both up nicely in 2010 while Revlon continues to sputter. The 33 stocks as a whole are up 1.26% annually compared to 0.05% for the S&P 500. Whether this is enough to convince investors to create their own portfolio rather than investing in the index is doubtful, but it does show why companies advertise. On this list, 25 of 33 stocks outperformed the index. Money managers will take this kind of success every day of the week.
Standard & Poor's produced a five-year study in 2009 that showed 71% of large-cap money managers couldn't beat the S&P 500. That's why passive funds like Vanguard's S&P 500 Index are so popular. However, just because money managers are sheep doesn't mean you have to be. Buy these stocks, hold them for five years (making no changes) and do it all over again in 2015. It works out to an annual cost of 0.16%, which is about the same as the Vanguard fund itself. It's so sensible, it's scary. (For more, see Rebalance Your Portfolio To Stay On Track.)
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