A 30-second commercial during this year’s Super Bowl, broadcast on Sunday, reportedly cost around $3.8 million. What kind of company can afford to shell out that much for half a minute of the nation’s attention?
Historically, beverage and car companies, as you can see in the infographic from Harvard Business Review below.
It makes sense: both industries are dominated by corporate giants with deep pockets, and brand reputation is very important for sales of both cars and drinks.
Once again this year, Budweiser, owned by Anheuser-Busch InBev (BUD), was one of the most prominent brand names of the super bowl: the company bought five ad spots for the brand (and one for Beck’s), and it was also mentioned numerous times in sponsorship situations. One of the Budweiser commercials, featuring a young Clydesdale horse, is currently atop the CBS.com poll of viewers’ favorite Super Bowl ads. BUD is a high-quality blue-chip stock but was last recommended in Investment Digest in August 2012.
“Anheuser-Busch InBev NV (BUD) is based in Belgium. It’s the world’s largest brewer. The company produces and sells over 200 beer brands. These include Labatt Blue, Budweiser, Stella-Artois, Beck’s Leffe, Hoegaarden, Skol and Brahma. Anheuser- Busch InBev’s yearly revenues of $40.8 billion are geographically diversified. Last year it generated 39.2% of its sales in North America, 36.4% in Latin America, 14.7% in Europe and 5.9% in the Asia-Pacific region. Global export and holding companies generated the balance of 3.8%. The company continues to expand, partly through acquisitions around the world. The long-term earnings outlook is favorable and its balance sheet remains in good shape. As a result, I expect Anheuser- Busch InBev to continue to raise its dividend quickly. The shares are on buy for long-term share price gains and growing dividends.”— Marc Johnson, CFA, The MoneyLetter, August 2012
PepsiCo (PEP) also returned in force, both buying airtime and sponsoring the halftime show. The company also ran two attention-grabbing ads for its Doritos brand that submitted by amateur filmmakers as part of Doritos’ Crash the Super Bowl contest.
If you were looking for investment ideas among the Super Bowl advertisers, you could do worse than PepsiCo, which was chosen as a Dividend Digest Top Pick for 2013 by Peter Hughes of The Blue Chip Investor. Here’s part of his recommendation:
“PepsiCo enjoys oligopoly status in its main product categories, helping sustain the firm’s strong financial metrics. Net profit margin is 10% and return-on-capital is 17%. PepsiCo management remains focused on returning money to shareholders: After repurchasing roughly $2.5 billion of its stock in 2011, the company has reduced its share count by 12% since 2001. The dividend yield currently stands at 3%. Furthermore, the dividend has been raised for 39 consecutive years and will probably continue to increase at a rate comparable to earnings. Profits are currently being impacted by higher commodity costs and intense competition in the North American soft-drink market, but analysts expect earnings to grow about 9% annually over the long term. PepsiCo stock trades at 16 times its earnings, down from a median of 18 during the past five years.” – Peter Hughes, The Blue Chip Investor, January 2013
Historically the fourth-largest Super Bowl supporter, according to the infrographic above, this year Coca-Cola (KO) put all its advertising chips into one basket, running a single two-part commercial that asked viewers to decide which of several characters would get to enjoy an ice cold coke at the end of the story. KO is a similar stock to PEP in its blue-chip growth trajectory and modest but growing dividend (currently yielding about 2.7%).
On the automotive side of the equation, the most visible names weren’t the American heavyweights of yesteryear (excepting two solid minutes of farmer-pandering from Chrysler’s Dodge) but more exotic names. South Korean Hyundai was a major sponsor, and also bought three ads, and South Korean Kia bought one spot. Both are public but listed in South Korea.
German Mercedes-Benz bought the naming rights to the Super Bowl venue, the Louisiana Superdome, in 2011, giving them a constant presence throughout the game. Also from Germany came two spots for Volkswagen Group brands, Volkswagen and Audi. Both are listed on the Frankfurt stock exchange and have U.S. ADRs that trade over-the-counter.
As far as investments go, I think your best bet among the auto advertisers is Japanese Toyota (TM), which ran a commercial featuring a wish-granting RAV4 genie. Toyota was just recommended in an Investment Digest Daily Alert last week, partly based on the tailwind it will receive from new Japanese premier Shinzo Abe’s plan to weaken the yen. The stock is also recovering from the recall issues it faced in 2009 and the 2011 tsunami in Japan.
That’s it for the major beverage and car companies, but a few other potential investments appeared in commercials from the non-cyclical consumer sector.
An ad for the Axe brand of men’s grooming products featured a lifeguard beating up a shark for the attention of an attractive swimmer, then losing the girl to an astronaut. (Tagline: “Nothing beats an astronaut.”) The Axe brand (which is known as Lynx in Europe) is owned by Unilever N.V. (UN). UN was recommended by Richard Young in the June 2012 Dividend Digest. He wrote:
“Unilever PLC (UL) is home to a catalogue of consumer brands that customers will continue to buy, in and out of recession. American consumers are aware of some of Unilever’s great brands, like Hellmann’s, Slim-Fast, Lipton, Wish-Bone, Ben & Jerry’s, Axe, Dove, Lifebuoy, Pond’s and Vaseline. But Unilever’s brands are popular around the world, too. Home care brands like Domestos, a bleach that is number-one or -two in its market in nine countries, and Sunlight Soap, a dish detergent that is the leading brand in 20 countries, are just two stars in Unilever’s brand constellation. CEO Paul Polman has nimbly implemented efficient policy at Unilever since he took over in January of 2009. … Buy Unilever shares today.” – Richard C. Young, Richard C. Young’s Intelligence Report, July 2012
UL is up about 20% since Young’s recommendation, but I think it still has potential here, particularly as a play on the resurgent emerging-market consumer (which is a major theme for 2013). Plus, the stock pays a quarterly dividend that currently yields about 3%.
Another option in that area is Mondelez International (MDLZ), which was born out of Kraft Foods (KFT) when it split into two businesses last year. Kraft retained its American-focused “grocery” brands, like Velveeta, Oscar Mayer and their eponymous mac & cheese, while the company’s snack food brands like Oreo, Ritz and Cadbury, which boast faster international growth, were rebranded under the Mondelez umbrella. Mondelez bought one Super Bowl spot for its Oreo brand.
MDLZ has a limited trading history (beginning with the corporate split in October 2012) but is still a blue-chip in many ways. However, the stock has freshness on its side, and also has better growth potential than the old Kraft, as noted by Argus Research analyst John Staszak when he recommended the stock in the November Dividend Digest. Here’s part of what he wrote:
“We are initiating coverage of Mondelez (MDLZ) with a BUY rating following the division of Kraft Foods on October 1. Our target price is $33. We believe that Mondelez, which includes most of Kraft’s high-growth international businesses, offers an opportunity to invest in a consumer packaged goods company with a significant presence in developing markets (44% of revenue). The company has a high-margin snacks/confectionary business with relatively few private-label competitors, and its strong brands and geographic reach should result in solid growth over time. Mondelez also benefits from economies of scale and has lower procurement costs than many of its competitors. Going forward, we look for productivity improvements to boost earnings, enabling ongoing reinvestment in the company’s businesses.” – John Staszak, CFA, Argus Weekly Staff Report, October 29, 2012
My final idea comes from Taco Bell’s single commercial, which followed a group of retirement home residents on a wild night out. Taco Bell is owned by Yum! Brands (YUM), which, with a market cap around $29 billion, is the smallest and fastest-growing of the companies mentioned here. The stock has been a great momentum pick at several points in its history, but cooled off substantially in 2012.
However, at the end of the year, YUM was given a second chance by Benjamin Shepherd’s Wall Street. Shepherd wrote that he liked the stock in part as a hedge against inflation in the U.S., thanks to the large percentage of its sales that originate outside the country. Here’s some of his recommendation from the December 2012 Investment Digest:
Yum! Brands, Inc. (YUM) is increasingly familiar to international consumers through its 14,000 KFC, Pizza Hut and Taco Bell restaurants outside the U.S. The company is on track to open its 750th franchise in China by the end of 2012 and take its restaurant count to 100 in India. It will also soon open its 20th KFC franchise location in Nigeria.
“Yum! has faced headwinds in recent years due to higher food costs, but it has finally begun to leverage its huge purchasing power to secure more favorable terms with suppliers. Operating costs have leveled out, leading to significant margin improvement and healthier earnings. In the third quarter of 2012, the company reported an operating margin of 19%, close to a 2-point increase. As the company’s financial position improves, its global growth opportunities are nearly limitless, with countries such as China, Indonesia, Malaysia and Brazil offering a huge number of young, relatively affluent consumers. Yum! Brands does face the potential headwind of cost inflation, but its huge international business will ensure outperformance in a weak-dollar environment.” – Benjamin Shepherd, Benjamin Shepherd’s Wall Street, December 2012
YUM is a good option for investors looking for a little more growth. MDLZ, UL, TM, KO, PEP and BUD should please investors who are happy with modest capital appreciation, reliability and growing dividends.
Wishing you success in your investing and beyond,
Editor of Investment of the Week