Great Brands and Great Stocks: Part 2
For Part 1 of this article, click here.
Interbrand this week released its updated 2013 brand rankings, which saw Apple leap to the No. 1 spot, unseating the longtime champion--Coca Cola. Having a powerful brand is, obviously, an invaluable tool -- one that bewitches consumers and investors alike. However, a quick glance at Interbrand's top picks shows just two that have outperformed the S&P 500 this year. The first part of this article identified two picks that were further down the rankings, but may have compelling upside potential. Here are two more.
A king of French fashion
Hermes has a tremendous presence in the world of high fashion, from fragrances to handbags to neckties. It is a $37 billion company that to this day produces the majority of its core branded items by hand, often with one person overseeing its creation from start to finish.
The company ranks 54th in Interbrand's latest ranking, and has climbed 9 places from its 2012 ranking. Financially, the company closed out 2012 with record earnings -- profits were up 26.4% and continued into 2013 with a gain of nearly 13% in the first quarter. Sales grew 14% through the first half of the year.
Insider ownership is a key vote in the company's favor, with the founding families owning a majority, and 23% owned by Bernard Arnault -- the owner of Louis Vuitton and Moet Hennessey (both brands are on the Interbrand top 100 as well). Looking ahead, the company plans to raise prices and pass on rising materials costs, while continuing to focus on its appeal as an incredibly high-quality product -- made by hand in an era when nearly nothing else is. Investors need not view Hermes' growth as purely price raises, either, as recent growth has been due to volume increases, not price.
The stock, like the goods Hermes makes, is expensive. At a trailing EV/EBITDA of more than 20 times, the stock compares to LVMH's (Arnault's company) 11 times and the aforementioned Prada's at just under 16.5 times. Year to date, Hermes is trading up nearly 17% and holds a bright, handcrafted future.
A real hog
Our final pick in the series is closer to home, and is one that has long served as an American icon. Harley-Davidson is not the most popular by sales figures, but undeniably one of the most, if not the most, recognizable motorcycle brand in existence. Interbrand ranks it near the bottom of the top 100 at No. 96 -- gaining 10% in brand value from the prior year.
To own a Harley, as explained by the company's chief marketing officer, is to pursue a lifestyle, not a destination.
The interesting thing about Harley, both as a brand and as a stock, is its increasing appeal to new markets. It is a definitely American product, but sees its greatest growth beyond our borders. In 2014, 40% of sales will stem from foreign countries, according to company estimates. In recent months, things have stirred up big-time at the company as it announced the introduction of eight new models for 2014. There hasn't been a lineup renovation this substantial in the company's entire history (110 years, for those wondering).
Harley-Davidson stock has risen quickly with its announcement and upgrades from research firms. Still, it's not too egregiously priced at less than 17 times forward earnings and with a balance sheet that shows significant improvement from a few years ago, when the company was in the depths of a crisis.
Focus down the list
The giants of tech and the world's favorite soda may be the most relevant brands across the globe today, but investing is a forward-thinking practice -- one whose experts judge a company by its status tomorrow. For investors compelled by a powerful brand name, this list provides plenty of interesting opportunities. Of course, it's crucial to keep in mind the value one receives for the price paid. Keep an eye out for the brands lower down the list, and focus on the ones that are fighting for the top, not sitting on it.
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The article Great Brands and Great Stocks: Part 2 originally appeared on Fool.com.
Fool contributor Michael Lewis has no position in any stocks mentioned. The Motley Fool recommends Apple and Coca-Cola. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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