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A Crazy-Good Opportunity to Buy Stock Market IconsBy
Friday, June 22, 2012
In 2005, I bought autographs of The Beatles...
Why?
At the time, The Beatles autographs were by far the most expensive "pop" artist autographs. I could have spent less money and bought autographs from less iconic artists... For example, autographs of The Eagles were less than half the price. (The Eagles are most famous for singing "Hotel California.")
But I didn't. It's a good thing...
Signed Beatles photos are up 394% from 1997 through 2010. Today, The Beatles autographs go for around $12,000... while a set of Hotel California-era Eagles autographs are "reduced" – on sale at $450. (All these prices are from Fraser's Autographs, where I bought my Beatles autographs.)
The Beatles are THE iconic band. Fifty years from now, The Eagles may be forgotten... But The Beatles will not be forgotten. They changed rock and roll.
I'm not telling you this so you'll go out and buy Beatles autographs. I'm telling you this to make an important point about iconic names and investing...
Iconic names ALWAYS trade at a premium to the market. They always seem a little expensive, compared to the other companies in their industry.
However... right now is a moment when it is completely worth it to step up and buy the slightly more expensive name... in order to own the iconic brand.
When it comes to the stock market, "The Beatles" (the iconic brands) only trade at a tiny premium to "The Eagles."
In short, we have a crazy-good opportunity to buy the iconic brands for cheap – we can buy Beatles autographs at Eagles prices, so to speak.
In 1972, iconic brands like Coke and Disney sold for upward of 70 times earnings. Yet today, they're only at a small premium over the rest of the stock market... Take a look:
Since 1973, the four companies in the table have traded at an average premium of 51% to U.S. stocks. Today, the premium is just 22%.
This is a historically tiny "spread" over the regular names. I expect this spread will widen again – and that someone will make a lot of money when it does.
I can't tell you if that will happen in three months or three years... But I can tell you that Coca-Cola is an iconic brand... so much so that people who drink Coke only drink Pepsi when, quite frankly, there is no Coke around.
Yet Coke is only selling for a tiny premium above Pepsi, based on their price-to-earnings ratios.
Now is a time to buy the expensive stock. Now is a time to buy the "Cokes" of the world.
To many people, Coke is The Beatles, while Pepsi is The Eagles. When you have the chance to invest in "The Beatles" at "The Eagles" prices, you must take advantage of it.
Good investing,
Steve
Further Reading:
Coca-Cola is one of the biggest, most powerful companies in the world. It tops the list of Editor in Chief Brian Hunt's favorite dividend-payers. And it's in good company... See which world dominating companies made Brian's list – and why he says investing in them is "a timeless idea that will always work" – here: Why a Handful of Income Stocks Are Soaring Right Now.
Dan Ferris calls large dividend-payers like the ones on Brian's list "World Dominating Dividend Growers." Many investors find these stable businesses "boring." But Dan says they are more profitable than "exciting" ones... "If you want excitement, go to Las Vegas," he writes. "If you want to make money, invest in boring businesses that dominate their industries and pay higher dividends every single year."
Market NotesIS OIL READY TO BOUNCE? The price of oil has fallen off a cliff.
It's down 25% in the past six weeks. And most of the talking heads on CNBC think it's headed lower.
But the technical picture says they're probably wrong. The price of the gooey black stuff looks poised for a short-term bounce.
As you can tell from the chart below, oil is approaching the support line at last October's low. That should at least cause the decline to pause. Also, the price of oil is now 18% below its 200-day moving average line. Oil rarely moves further away than that, before reversing and trending back toward the line.
Oil may not have bottomed for the year. But it has fallen so far and so fast that traders should be prepared for a short-term bounce.
– Jeff Clark
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