You Can't Stop These Stocks

Long before GE (NYSE: GE  ) was a global leader in financial services and health care, a major TV studio and water purifier, and a pioneer in the alternative energy and green technology spaces, GE was General Electric -- a Schenectady, N.Y.-based maker of electric lighting and appliances.

Yes, this was high technology back in 1892 when the company was founded (with roots back to Thomas Edison), but had GE stuck to its knitting in that niche, it would not be the nearly $300 billion conglomerate we know today. In fact, GE recently announced that it plans to sell its appliance business, and I've heard rumors that it also plans to get out of the legacy lighting business, due in part to pressure from low-cost Chinese manufacturers.

No way to conquer the world
Instead of being content as a lighting company, the people at GE decided to be an idea company. That's why GE became such an incredible success, and why it continues to churn out market-beating returns a century after its founding. Indeed, over the past 20 years, GE has returned more than 1,170% -- turning a $1,000 investment into nearly $13,000 today.

What gave GE the flexibility to move up the value chain? Besides hard work and know-how, it was the company's bulletproof reputation for high quality. In other words, it was the company's brand.

Big brands, big money
But GE isn't the only company that parlayed success in a single niche into global domination. Consider 3M (NYSE: MMM  ) . This $52 billion blue chip, which makes everything from Post-its to precision optics, began as Minnesota Mining and Manufacturing -- when five guys in Duluth decided to start making sandpaper.

Even Nike (NYSE: NKE  ) , a company that likely could have done just fine selling running shoes, has been able to slap its distinctive swoosh on everything from high-tech socks to high-tech golf clubs. How did a shoemaker get into the business of selling ultra-light titanium drivers? The answer, of course, is brand.

This is not a new phenomenon
While GE, 3M, and Nike have leveraged their brands to achieve extraordinary growth, the importance of a good brand to a business is not a new discovery. The Atlantic recently reported on a National Bureau of Economic Research paper by Gary Richardson called "Brand Names Before the Industrial Revolution."

Richardson found that even in medieval markets, "Buyers were willing to pay more for goods that came from reputable outlets, and this encouraged manufacturers to fashion their products with identifying features."

Entrepreneurs found out fast that brands are why companies can expand geographically, expand their product lines, and earn outsized returns for shareholders. After all, without its sterling brand, Coca-Cola (NYSE: KO  ) would just make sugar water ... and as any five-year-old lemonade proprietor can tell you, that's no way to make milk money, let alone the $6 billion in profits Coke banked over the past year.

There's gold in them thar logos
It turns out that a strong brand is one of the few sources of sustainable competitive advantage in this world. And while brands can be difficult to value (the best way is to estimate their replacement value, or how much it would cost a competitor to earn the same trust and mindshare from consumers), they are one of the core traits we look for to find promising small-capitalization stocks for our Motley Fool Hidden Gems subscribers.

After all, if you can find a small company with a big brand, then that company has a much better than average chance of becoming a big company along the way. Sure, they could mess it up (things like profits and a strong balance sheet still matter), but a strong brand is a significant head start.

Companies with that head start
This is why Sotheby's (NYSE: BID  ) , Under Armour (NYSE: UA  ) , and Princeton Review (Nasdaq: REVU  ) have all popped up on our Hidden Gems radar at one time or another. Each is capitalized at less than $2 billion, and yet how many other world-renowned auctioneers can you name off the top of your head?

Sotheby's brand is the reason the company could get into real estate, Under Armour's into football cleats, and Princeton Review's into subject tutoring. A great brand, in other words, can make a stock unstoppable.

If you're looking for more small companies with powerful long-term brand potential, sign up for Hidden Gems free for 30 days and see all of our research and recommendations. Our picks are beating the market by 22 percentage points on average, and you have no obligation to subscribe. Click here for more information.

Tim Hanson owns shares of 3M and Sotheby's. Princeton Review is a Motley Fool Hidden Gems recommendation. 3M and Coca-Cola are Inside Value picks. Under Armour is a Rule Breakers selection. The Fool owns shares of Under Armour. Writing witty lines about our disclosure policy is one of The Motley Fool's branding strategies.


Read/Post Comments (12) | Recommend This Article (58)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 20, 2008, at 2:26 PM, exgeemployee wrote:

    GE...continues to churn out market-beating returns?!?!?!?! Have you checked the stock price lately? Immelt is driving all GE employees (past and present) into retirement hell. He's gotta go soon!

  • Report this Comment On June 20, 2008, at 8:21 PM, bobcollins wrote:

    I trust your 20 yr return figure, but please tell us the last 10yr return, (dead money comes to mind), even before this past week or so, yes?

  • Report this Comment On June 23, 2008, at 1:04 AM, kamuirei wrote:

    Look at a chart with less than a 20 year time frame and the story is quite different... it's not quite stopped, but it's certainly a bit sluggish. GE does serve to demonstrate what happens to growth as it evolves from a small to mega cap.

  • Report this Comment On June 23, 2008, at 3:08 PM, sjr1210 wrote:

    Ah, my friends, do your research. Check out the Economist this week and you'll see where GE is doing really well. Of course a lot of this depends on who becomes president. If the climate takes second place to the economy, things will likely slow down for alt energy sources.

  • Report this Comment On June 27, 2008, at 11:09 AM, HerbTied wrote:

    This article is still just an ad,

  • Report this Comment On June 27, 2008, at 11:48 AM, lerej wrote:

    Another pitch, great! I really would like to unsubscribe from the pitches. YOU HEAR THAT DAVE AND TOM! READ THESE WE'RE ALL SICK OF THE SALES PITCH!

  • Report this Comment On June 27, 2008, at 12:24 PM, rodneyclark88 wrote:

    lmao, I agree with guy above me! Im not subscribing to an advisor with these crazy markets!

  • Report this Comment On June 27, 2008, at 1:22 PM, Boo2007 wrote:

    Компания которая имеет хорошую марку на рынке, имеет дополнительный плюс в реализации товара, даже если это не ее товар ( конешно будут последствия, если долго будет продолжаться). За такие компании можно держатся только ради марки, если нет своего рейтинга в реализации..

  • Report this Comment On June 27, 2008, at 2:17 PM, PapaRossi wrote:

    Are you saying you can't stop these stocks from falling!!! We are looking at dow 10,000 and oil at $200.00 a barrel

  • Report this Comment On June 27, 2008, at 6:05 PM, sluggger222 wrote:

    What is this, some kind of a joke? I do not think that any of the stocks mentioned above has positive growth over the past year.

    More evidence that the "Buy and Hold" strategy ends up becoming a "Buy and Lose", or at least, "Buy and Stagnate" strategy in the end.

  • Report this Comment On June 27, 2008, at 7:31 PM, briboe wrote:

    This author obviously does not keep up with world events - and therefore I would never listen to him. GE is tanking because they are selling goods to Iran - the same Iran which is killing Americans in Iraq. Who wants to buy stock in a company that sells to a terrorist regime?

  • Report this Comment On June 30, 2008, at 7:59 AM, dhassl wrote:

    Briboe;; Bribed? as in a Fox news parrot. ? Old lies about GE in IRAN. We should be exporting what we do best - commerce and Education - NOT hyper militarism.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 669229, ~/Articles/ArticleHandler.aspx, 8/27/2014 9:10:00 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 17,106.70 29.83 0.00%
S&P 500 2,000.02 2.10 0.00%
NASD 4,570.64 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/26/2014 4:01 PM
BID $41.75 Up +0.11 +0.00%
Sotheby's CAPS Rating: ***
GE $26.01 Down -0.19 +0.00%
General Electric C… CAPS Rating: ****
KO $41.60 Up +0.19 +0.00%
Coca-Cola CAPS Rating: ****
MMM $144.60 Down -0.10 +0.00%
3M CAPS Rating: ****
NKE $79.48 Down -0.53 +0.00%
Nike CAPS Rating: *****
REVU.DL $0.00 Down +0.00 +0.00%
The Princeton Revi… CAPS Rating: ***
UA $70.82 Up +0.27 +0.00%
Under Armour CAPS Rating: ****

Advertisement