10 Top Brands You Can Buy Today
LONDON -- We've all encountered the power that a brand can have in a purchasing situation. It may just be that the brand is a trusted supplier; other times, we might use brands to impress (e.g., fashion).
One common theme in investment is "pricing power." This is the ability that a company has to maintain or increase its prices and still grow sales. A strong brand is a huge part of a company's pricing power: Brands can play a key role in a company's sales, growth, and long-term profitability.
I scoured the market to find 10 of the strongest brands around.
Company | Price (pence) | Yield (historic) | Yield (forward) | P/E (historic) | P/E (forward) | Market cap (millions of pounds) |
|---|---|---|---|---|---|---|
AG Barr (LSE: BAG.L) | 453 | 2.1% | 2.2% | 19.3 | 19.9 | 525 |
Burberry | 1,009 | 2.5% | 2.8% | 15.9 | 15 | 4,430 |
Diageo* | 1,755 | 2.5% | 2.8% | 18.8 | 17 | 43,720 |
HSBC | 580 | 4.3% | 4.6% | 10.1 | 10.5 | 105,800 |
Marks & Spencer (LSE: MKS.L) | 360 | 4.6% | 4.6% | 10.6 | 11.1 | 5,800 |
Mulberry | 1,170 | 0.4% | 0.7% | 26.6 | 21.9 | 689 |
Portmeirion* | 495 | 4% | 4.1% | 11.4 | 10.1 | 51 |
Rolls-Royce | 847 | 2.1% | 2.3% | 18.7 | 15.1 | 15,820 |
Sage (LSE: SGE.L) | 317 | 3.1% | 3.3% | 16.3 | 15.8 | 3,960 |
Vodafone (LSE: VOD.L) | 177 | 5.4% | 7.8** | 9 | 10.9 | 87,090 |
*Owns a collection of brands. **Forecast includes some estimates that assume a special dividend will be paid.
Four stood out as particularly interesting.
1. Marks & Spencer
Marks & Spencer is such a strong brand that it has spawned its own offspring brands: M&S, Marks, and (my personal favorite) Marks & Sparks.
The strength of the Marks brand is reflected in the company's operational statistics. Compared with its sector peers, M&S ranks in the top quartile for operating margin, return on capital employed, and return on equity. Take a look at the following, too:
Marks has long been regarded by consumers as the more expensive, yet consistently superior retailer.
In 2001, M&S successfully leveraged its brand strength to launch its Simply Food chain. Today the company has 496 Simply Food stores across the U.K.
Marks is rolling out its stores internationally. The company recently reported double-digit sales growth in India and China.
Back in the U.K., customers have a banking offering to look forward to as M&S continues to capitalize on its standing with British consumers.
Earnings at M&S are expected to dip slightly in 2013. The shareholder dividend is forecast to rise 1.5%.
2. AG Barr
Cumbernauld-based AG Barr is owner of one of the world's most unique soft-drinks brands: IRN-BRU. The company also owns the Rubicon, KA, and Tizer brands.
Alongside its strong brands, AG Barr also fits another popular investor requirement: a large family shareholding. Collectively, the Barrs own 38% of the company founded by their forefathers in the late 19th century.
AG Barr has been one of U.K.'s most successful companies in recent years. Shareholder dividends have increased every year since 2002. Sales and profits rose throughout the financial crisis and recession. Operating margins have increased from 11% in 2007 to 14.9% in 2012.
This is the kind of performance companies and shareholders dream of. The result is that the company trades on a premium rating.
The company's success has increased its clout. Today, AG Barr's market capitalization is more than double what it was five years ago. This advance has enabled the company to initiate merger talks with rival Britvic.
3. Sage
Accounting-software firm Sage is one of the few companies in the FTSE 100 that's less than 50 years old. Its rise has been such that it now has 13,400 employees worldwide and 6.3 million customers.
Why do I think Sage is a strong brand? Its huge market penetration has made it the de facto standard accounting software. Installing anything other than Sage is a considerable risk. Any company doing so would risk massive upheaval of their accounts department -- a vital function in any sizable business. Sage has a huge installed customer base, which makes it easier to recruit new accounts staff, as they will likely already be familiar with Sage.
The shares are a great example of a high-P/E stock that came good. In previous years, Sage traded at around 20 times earnings. The company delivered on investors' expectations, nearly doubling earnings per share between 2006 and 2011.
4. Vodafone
Vodafone has been around since the dawn of mobile phones. Compare that with its rivals, who have gone through a series of rebrandings and mergers. Remember Securicor? Cellnet? How about Rabbit or One-2-One?
While Vodafone isn't a brand with cache (unlike Burberry or Mulberry), it has longevity. That brings with it an air of security, reliability, and competence -- just what a customer needs from a mobile provider.
Vodafone has been a solid company and a dependable share. The company has been increasing its dividend to shareholders for the last five years. Earnings per share increased more than fourfold between 2008 and 2011.
Vodafone's business is made from millions of separate relationships with its customers. This means that there is less business risk than with a company like Rolls-Royce, which will have a small number of key customers who must be kept happy.
Investing in companies with a strong brand is a multidecade habit of Warren Buffett. So what U.K. company has one of the world's best investors been buying shares in recently? Find out in our free report "The One U.K. Share Warren Buffett Loves." This report is 100% free and will be delivered to your inbox immediately.
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