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Wednesday, July 12, 2006

Most Widely Traded 48 Clock: Why Brands Don't Mean Much


24/7 Wall St. has begun coverage of the 36 most widely traded stocks, eighteen each from the NYSE and the NASDAQ. Most of these stocks trade over 50 million shares a week. This new feature will highlight each of the 36 stocks at least every 48 hours giving investors fresh infomation and perspective on the companies whose shares are most likely to move the broader markets.

There was a time when having a premium brand meant a lot in terms of sales and even share price. Apple began to make a lot of the "best brands" list once the iPod hot.

The results of the new Harris poll would appear to be confusing. Or, maybe a brand name is not what it used to be.

Sony has been the top brand in the US for seven years in a row, according to Harris. Also making the list were Dell, Ford, GE, Kraft, and Apple. Now, go tell the shareholders at these companies.

At $22, Dell has not been this low since late 2001. Apple is at a 9-month low at $53. GE's stock, at $33, has barely moved since early 2004. The Dow Jones Industrial average has outperformed it. At $6.90, Ford has dropped from $25 five years ago. And, Kraft, which was at $36 in late 2004, now trades at $30.60. The food company's stock is flat from two years ago while the Dow is up about 8%.(Kraft is 86% owned by Altria.)

Of course, there is the "super brand" on the list, Sony. It's ADRs were at $60 in early 2002 and trade at $42.90 now.

Toyota, Honda, Hewlett-Packard and Coca-Cola are on the list, and have done well in the stock market recently.

But, the issue of brand valuations becoming disconnected with stock valuations opens an interesting debate. Why invest in brands if they don't drive strong revenue growth and shareholder value?


On a further note from us here, if you took this to an extreme analogy you might even draw a conclusion about "Goodwill" on balance sheets. Many companies have high values on "goodwill" in the "other assets" section of their balance sheet. There is obviously an inherent value to these brand names, but if the brand is actually not creating value for shareholders then it means "goodwill" could be greatly overstated. It is true that there is value to brand names such as "Windows" and "Tide" and "Blackberry" and even to "Red Bull." But if these do not ultimately contribute to shareholder value, then maybe the contribution of "goodwill" on corporate balance sheets should be the next flurry of accounting practice reviews. If you look at corporate balance sheets with large portions of the assets being listed as "goodwill" you can probably find some interesting facts about the real health of some companies.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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