Revisiting The "Brand" Name Portfolio

About three years, I introduced readers to the "brand" name portfolio - a collection of 10 stocks whose corporate name includes the word "brand." Last June, I did a follow-up article to see how they were doing and this year I've decided to make it an annual affair. I think you'll find that despite the unconventional construction of the portfolio, its performance is rather exceptional and quite possibly, worth copying. You be the judge. TUTORIAL: Top Stock-Picking Strategies

Brand Name Portfolio - Performance - June 2008 to June 2011

Company	Return 2008-2009	Return 2009-2010	Return 2010-2011	Return 2008-2011
Acuity Brands (NYSE:AYI)	-45.0%	52.6%	25.1%	5.1%
Fortune Brands (NYSE:FO)	-46.9%	29.4%	40.6%	-3.5%
HanesBrands (NYSE:HBI)	-37.1%	56.3%	-3.9%	-5.5%
Interline Brands (NYSE:IBI)	-19.7%	44.9%	-1.9%	14.2%
Iconix Brand Group (Nasdaq:ICON)	3.9%	14.9%	38.4%	65.3%
Internet Brands	0.0%	0.0%	93.6%	93.6%
Lifetime Brands (Nasdaq:LCUT)	-51.9%	297.2%	-32.8%	28.3%
Limited Brands (NYSE:LTD)	-37.6%	108.3%	43.8%	87.0%
Prestige Brand Holdings (NYSE:PBH)	-49.7%	33.1%	61.4%	8.1%
YUM Brands (NYSE:YUM)	-7.6%	23.2%	29.0%	46.9%
Entire Portfolio	-33.8%	45.4%	25.2%	20.6%
S&P 500	-31.4%	21.3%	13.8%	-5.3%

Interesting Year
A lot has taken place since last year's article. First off, the group of 10 stocks is now nine. In September 2010, private equity firm Hellman & Friedman acquired Internet Brands for $640 million or $13.35 a share. Paying a premium of almost 50% for the developer of websites such as CarsDirect.com, it was a good deal for both the buyer and the portfolio. With the exception of Limited Brands, up 87% since June 2008, no other stock comes close. Another very interesting development was the sale of Fortune Brands' Acushnet Golf Company division in May 2011 for $1.23 billion to Fila Korea Ltd. and its private equity backers. The $1.1 billion net proceeds after tax will go towards further strengthening Beam Global Spirits. As part of Fortune's focus on the alcohol business, it is spinning-off its Home and Security division in the near future. Once this is completed, I'm confident its stock price, which has been stuck in the 60s, will move toward the century mark and that will definitely keep the portfolio's performance humming.

Possible Replacements
I have one slot to fill and plenty of candidates that can do the job. Finviz.com lists 17 possibilities but because Internet Brands was a small cap, I'll try to replace it with something similarly sized. In my original article from 2008, I was close to choosing either Collective Brands (NYSE:PSS) or Maidenform Brands (NYSE:MFB), but with Limited Brands in the fold, it eliminated the need for another retailer or manufacturer of intimate apparel. Although Maidenform's stock's done very well since then, I'm going to pass, preferring to take a gamble on Furniture Brands International (NYSE:FBN). Why take a stock that hasn't produced an operating profit since 2006? That's a good question.

Three Reasons to Own
There are three reasons to buy Furniture Brands International. The first is the potential of its Thomasville stores. In October 2007, it hired Ed Teplitz as President of the Thomasville division. Teplitz ran Ethan Allen's retail business prior to his hiring and the move appears to be paying dividends. In the first quarter ended March 31, its 46 stores, owned for at least 15 months, saw same-store sales increase by 17%, the fifth consecutive quarter with a double-digit same-store sales increase. That's no small victory for a company that's seen revenues drop by half in the past five years and operating profits completely disappear. To pull yourself out of a hole, you have to start somewhere. The second reason to buy has to do with the stock's resiliency. Despite a $202 million impairment charge in the fourth quarter of 2008, the stock price remained above $10 until mid-September of that year and even though by April 2009, it was trading below $1, it's been above $4 most of the time since. Obviously, there are enough buyers out there to keep it from cratering permanently. That's a great sign for a company some believe is on life support. However, I calculate its current Z-Score at 2.68, which means it's not far from being considered a healthy company. Obviously, making money will help that along but most importantly, it's not going bankrupt anytime soon. Lastly, Brian Sozzi of Wall Street Strategies wrote an interesting article in April that does a good job explaining why the furniture industry missed the consumer-spending spree between 2005 and 2007 and only now is making a recovery. Sozzi suggests that beginning in February 2010, furniture sales increased year on year in 12 of the next 13 months. While that's not going to solve Furniture Brands profit shortfall, it will ensure the company has more time to fix the various problems plaguing it (too many manufacturing plants, terrible retail store locations and everything in between). (For more on the z-score, see How To Calculate A Z-Score.)

Bottom Line
The "brand" name portfolio is doing great. The addition of Furniture Brands International, a big underdog in its industry, will definitely make a positive contribution to the portfolio in the coming months. How big is too early to tell.

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