We want our sports teams to dominate their leagues, and our fourth graders to dominate their spelling bees. Why shouldn't we want dominators among our stock picks and in our portfolios? Companies that grow to dominate their industry are generally great investments, especially if you catch them on their way up.
One way to ferret out world dominators and promising stock picks is to study lists of the top brands in the world. The folks at WPP and Millward Brown put out a ranking of global brands by brand value each year, and for 2013, the top three brands belonged, in order, to Apple, Google, and IBM. It's not news that those are global dominators, and actually, most of the names among their top 100 are familiar. Interestingly, though, while the top brands didn't change position much between 2012 and 2013, some names did jump ahead quite a bit. That suggests companies growing in brand power, which often translates to pricing power and hefty profit margins, things one likes to see in stock picks. Below are three companies on the list seeing big improvement:
Visa (V -0.23%) saw its global brand value surge 46%, to $56 billion. The company is extremely global, operating in more than 200 nations, and it's poised to profit as more and more people and businesses shift from cash transactions to electronic ones. Its presence in emerging markets is also a good thing to see among stock picks, as such economies are growing rapidly -- and for Visa, that means more people beginning to use plastic for purchases. Meanwhile, our recovering economy is leading to an uptick in credit payments. The fast-growing company's forward P/E is 21, well below its five-year average of 41. Visa is far bigger than its rivals, although MasterCard is doing particularly well globally.
Disney (DIS -0.04%) enjoyed a rise in brand value of 40%, to about $24 billion. The company seems to have laid an egg with The Lone Ranger, but Iron Man 3 did well (as is Pixar's Monsters University) and Disney is investing in Marvel superheroes, too. Meanwhile, it's launching its Disney Infinity console gaming experience in August and raising its theme-park prices by between 5% and 10%. (Attendance has been growing faster at international parks than domestic ones, too.) This stock pick doesn't appear to be a screaming bargain right now, with its forward P/E of 16 a bit ahead of its five-year average of 15. It's still likely a solid long-term buy, though, and at least worthy of a watchlist berth.
eBay's (EBAY 1.32%) global brand value jumped 40%, to roughly $18 billion. It's specifically aiming at global domination, with a forecast of enabling $300 billion in global commerce by 2015. It's spreading internationally in large part by acquisition, and is increasing its emerging-markets staffing by 50% this year. For several years now, it has been raking in more internationally than domestically. The stock's forward P/E of 17 is a bit ahead of its five-year average of 16. You might prefer that your stock picks have lower P/E numbers, but eBay's strong growth record and prospects make it a compelling long-term proposition. Many consider eBay's PayPal business to be its crown jewel, but while it poses a threat to the likes of Visa, it's vulnerable to threats, too.
Sifting through stock picks for ones with the potential to be bigger world dominators can pay off well.
