We are told over and over how important brands are and many of us who work for companies know about their brands. One of the reasons brands are so important to an investor is pricing power – can they raise prices and retain market share or make more money? Scott Barlow (sbarlow@globeandmail.com) recently wrote a column called Brands with true pricing power. In the column he started with a research report by Merrill Lynch chief quantitative strategist Savita Subramanian. The research about pricing and brands was two indicators are gross margins which are stable or increasing and brand equity. She wrote companies that with gross margins that have remained constant or increased have outperformed companies whose gross margins decreased by almost 40%. As an investor you are asking which stocks are those?

Mr. Barlow took the 100 top brands as nominated by Forbes magazine and listed them.

Some were private (IKEA), some belong to companies which have multiple brands (Porsche, ESPN, Rolex, Pampers, Frito-Lay) but he could bring the total to 70 companies and the world’s most powerful brands. Mr. Barlow then ranked the companies by standard deviation of gross margin results over the past 5 years using Bloomberg

Company                                        5 year standard                Gross         3 year annual    P/E

deviation of GM              Margin      return%             Ratio

Wal-Mart                                         0.27                                   25.13             0.48                  15.22

Home Depot                                    0.43                                   34.19            25.95                 24.02

Colgate-Palmolive                      0.65                                    58.62              9.35                  24.23

Coca-Cola                                      0.77                                    60.53               8.45                21.56

Estee Lauder                                  0.92                                   80.51               15.30               29.35

Accenture                                       0.93                                   29.80              14.40              19.90

Deere & Co                                     0.97                                 30.21                -1.83               14.61

BMW                                                1.17                                  21.15                   7.52               8.55

Pepsi                                                1.17                                  54.99                 12.63             21.70

Siemens                                         1.19                                   28.88                   7.66             13.29

Starbucks                                      1.22                                   59.36                 28.71            36.21

Nissan                                            1.29                                   18.76                  6.80            7.93

Daimler                                         1.31                                     21.27                 17.41             8.60

Nike                                               1.33                                    45.97                 32.38             30.00

Adidas                                           1.36                                   48.29                 10.33                30.33

Linking to dividend paying stocks, all the above companies are leaders and make profits, some years are tougher than others but they make money. Starting with best in class or strongest brands because of the advantages in the marketplace which that offers is a great place to start. These are the companies which keep and grow your money over the years as you enjoy the brands.

There are more questions than answers, till the next time – to raising questions.