Great Brands Of Tomorrow by Credit Suisse

Credit Suisse Research Institute recently released report "Great Brands of Tomorrow". The purpose of this report is to emphasis on how a company's brand can be one of the few true competitive advantages remaining in modern industry. The summary of the report is as follows.

 

Accordint to the report Credit Suisse analysts has identified 27 "Great Brands Of Tomorrow". They believe these sectors will significantly outperform the market over the next 3-5 years as they build and leverage brand equity to grow in size, scale and profitability.

 

Based on case study analyses of dozens of brand stories from the last century, framework of Credit Suisse report two filters to determine how and when to invest in brand stocks:

 

1. Identifying the industry and company specific conditions necessary for brand success; and
2. understanding the brand lifecycle and key entry and exit points from a shareholder perspective

Omar Saad, a director at Credit Suisse and a U.S. Branded Apparel & Footwear analyst said, "We believe a strong brand is one of the most powerful and sustainable advantages a company can have, but one that is often ignored by the financial markets. We believe brand stocks will continue to outperform the market, and our proprietary framework analyzes brand lifecycles to determine how and when to invest in brands for optimal returns."

 

The 27 "Great Brands of Tomorrow" include: Alibaba.com, Almarai, Amazon, Apple, BIM, Capitec, China Merchants Bank, Commercial Aircraft Corporation of China, Enfamil, Facebook, Hyundai Motor, Indian Hotels, Julius Baer, Li Ning, Mahindra & Mahindra, MercadoLibre, Mercedes-Benz, Polo Ralph Lauren, Sonova Holding, Swatch, Tiffany & Co., Tingyi, Trader Joe's, Tsingtao Brewery, Under Armour, Uniqlo, and Yakult Honsha.

 

Key findings from the "Great Brands Of Tomorrow" report include:

 

# Strong brand companies have consistently generated out-sized long-term growth and returns for shareholders. One indication is that an equal-weighted stock index of companies spending at least 2% of sales on marketing outperformed the S&P 500 by more than 400 bps annually since 1997. The top quintile of those companies outperformed the market by 17% per year.

 

# Industry matters. Brands are relevant in many industries beyond traditional consumer sectors, but some are more "brand-friendly" than others. Brand power is strongest in industries where there is close proximity to the end-user (i.e. fewer steps between consumer and brand), there is ample room for product differentiation among competitors; and reputation plays an important role in consumers' purchasing decisions.

 

# Most brands follow a similar arc with five distinct stages: emerge, hit the wall, transform/proliferate, dominate and reinvent. Investing in companies that are transforming from niche player into a powerful brand that can be proliferated across new markets and categories offers investors extremely attractive returns, and is typically the phase in the brand lifecycle that generates the largest market value creation.

 

# Tough financial times are often the most opportunistic backdrops for great brand companies to solidify strong existing brands, as weaker competitors scale back and new entrants delay risky plans. Historically, brand stocks have massively outperformed by 1,800 bps in the 6 quarters following an economic slowdown. History looks set to repeat itself following the Great Recession of 2008-09, as brand stocks have already started to outperform (700 bps since March 2009).