There is value in the crowd – not how they invest but what they buy. Especially, there is value in repeat buyers attracted not just to a product but a brand. The greatest investor in brands in the world is also the greatest value investor in the world and the greatest investor in the world — Warren Buffett. Yes, he does all the math and invests in the value of free cashflow – real cash flow – better than anyone, but he also is big on brands. Brands are often considered “intangibles” that can boost a company’s value. Buffett looks at brands as if they were a hard asset that can be quantified.
Last week, Starbucks announced it was getting into the single cup or “K-cup” coffee market with its own brewer and pods later in the year. The stock went up, the leader in that market, Green Mountain Coffee Roasters (GMCR) , saw its stock get hammered and some analysts – those who drink tea, I suppose – questioned whether Starbucks could be successful in that market. They said the company does not have distribution in stores, Wal-Mart Stores (WMT) is entering the business, Costco (COST) does this, Green Mountain will do that and so on. They are overlooking the Starbucks brand. That brand, according to the Brandz Top 100 reports on brand valuations, rose 40% in value in 2011 and is among the three most trusted brands in the fast-food sector. Translation: If Starbucks sells it, it has to be good.
Apple’s extreme brand power
Apple is an even more extreme example of the power of brand. It is the No. 1 brand in terms of value, in the world – same report – and proves it by running the most successful retail operation in the world without the company name on the store – just the Apple logo. These stores generate $5,600 of revenue per square foot; the next best retailer does $900 per square foot. Yes, Apple makes great products. Yes, it has great support. But when it introduces a product, people flock to it to look or buy. And when it introduces a less-than-great product, Apple TV for example, people do not get angry or turn from the company. That is the power of brand.
Too often when investors think of brands they automatically lock in on the great luxury brands – Ralph Lauren (RL), Tiffany (TIF), Coach (COH) and so on. They ignore the great value in less-glamorous brands that have sustained companies through the Great Recession and will through the coming recession. These companies and their stocks are more and more in favor of longer term investors and many are bargains. What are the top ten – most valuable – brands in the world? (again according to the BrandZ Report).
9. China Mobile
10. General Electric
You may notice that nine of the ten are American brands. Also take notice of the stock prices of these companies through the crash.
Also notice the brands where the crowd counts – when they can move quickly and stick with something – all did well. General Electric, outside of light bulbs, is hardly a consumer brand and it lost a good deal of its valuation due to its heavy reliance on profits from its financial arm. AT&T is the only consumer brand with a stock that has fallen.
Luxury brands, spendy food and the mass market
This success in creating value extends to three brands that have moved for the luxury segment to a more mass-market segment – Ralph Lauren, Coach and Tiffany.
And this also extends to what is seen as “expensive” food, specifically Starbucks and Whole Foods Market (WFM).
My point? Time to pull up some wisdom from the godfather of the modern mutual fund – Peter Lynch – who always said if you like the computer printer, buy the computer printer company. The same is true for brands – if the crowd likes the brands, these brands have proven to be not just durable but also of great value to the investor over time.