Name Brand Tech Stocks Are More Profitable for Your Portfolio
- Most of the iconic name brands in technology and in the consumer goods sector are 100 years old. And consumers are no longer interested in them.
- Nowadays, consumers choose store brands that are more affordable and offer the same or better quality than name brands.
- But consumers do stay loyal to name brands in this sector — and there’s an easy way to profit from it.
Name brands used to make great businesses.
They offered an image and the perception of being of higher quality than store brands.
They were able to sell commodity items for higher prices because of their labels. A can of Coca-Cola was able to fetch more money than any other cola.
That’s the power of a brand. People get used to the image the brand is selling and stay loyal to it — even though it comes with a higher price tag.
All that has changed in the consumer goods sector over the past decade.
Nowadays, consumers aren’t so loyal to brands. They are more than willing to buy a private-label product for less money.
This new trend has kicked the packaged food business in the teeth.
You see, the consumer goods sector is facing challenges with declining sales and getting people to pay up for their brands.
But there is one sector that still holds consumer loyalty: the technology sector.
I’ve noticed huge gains coming from name brands in this industry. And that’s where we want to put our money.
Consumer Goods Name Brands Are Declining in Sales
Watch my video below to learn more about the decline in name brands in the packaged food industry — and what that means for you.
“Oh, I wish I were an Oscar Mayer Wiener
That is what I’d truly like to be
’Cause if I were an Oscar Mayer Wiener
Everyone would be in love with me.”
I’m sure you sang along as you read that. Many in the advertising industry say it is the most iconic jingle in history.
As the story goes, Richard D. Trentlage wrote the song in an hour. One late night in September 1962, Trentlage jotted down the words to this song.
The jingle ran until 2010. In fact, it became one of the longest running jingles ever.
Oscar Mayer makes cold cuts, hot dogs and Lunchables products. And this song made the company billions of dollars and turned it into a household name.
Almost a century after being family-owned, the business passed on to be part of General Foods in 1981. And a few years later, it merged with Kraft Foods.
For a few decades, owning shares in a company with name brands meant money in the bank. But over the past several years, brands have started to decline.
And for companies that rely on their brands to drive sales, that’s like a punch to the stomach … they are having trouble catching their breath.
See, private labels have become powerhouses. And consumers don’t have a problem buying store-brand products to save money.
Costco’s store brand, Kirkland Signature, for example, generated close to $39 billion last year. That’s more than Kraft Heinz’s total revenue of $26 billion.
And that’s one of the reasons Kraft Heinz is the latest casualty in the consumer goods sector. The company reported earnings last week, and it wasn’t good. Kraft suffered a 5% drop in revenue.
In February, the company wrote down more than $5 billion in the value of Oscar Mayer and Kraft brands. Over the past year, its stock price lost more than 50% of its value.
You can see what I mean in the chart below:
Kraft Heinz isn’t the only brand suffering from the rise of store or private-label brands.
Procter & Gamble recently wrote down the value of its Gillette brand by $8 billion. It faces increased competition from cheaper razors from companies such as Dollar Shave Club and Harry’s.
Earlier this year, Coty, a global beauty company, wrote down the value of Clairol and CoverGirl brands by $3 billion.
And sales of Campbell’s soups have fallen in eight out of the past 10 fiscal years.
As I mentioned earlier, people could once invest in these stocks and forget about them. Over time, they collected nice dividends and the stock price would rise.
Name brands were pretty much a slam dunk when it came to making money. But the world is changing fast, and these companies are behind the curve.
You can’t count on your net worth to grow year after year by owning a portfolio with name-brand companies. I’m sorry to say, those days for consumer goods are over.
To make money with name-brand stocks, we must turn our attention to the technology industry.
Tech Name Brands Are the Profitable Investments You Want
I don’t see much growth, if any, in consumer goods. But I do see huge gains coming from name brands in the technology world.
Companies that have big market shares and that supply a product or service that is very difficult to replicate and is crucial for the running of the business, do very well.
This applies most to the technology industry. These companies have consumers, be they businesses or individuals, roped in their ecosystems, following and paying up for them.
The reason is that businesses won’t move from the technology they use in their systems to save a few pennies.
And consumers who like and know how their piece of technology works prefer to stick with more products from the same brand.
The share price of technology brands such as Microsoft, Google and Apple have outperformed the stock market over the past three years.
Take a look at the chart below:
As you can see, the stock prices of these companies have soared 50% or higher, outperforming the S&P 500 Index. And they will continue to grow, because once the consumer is entrenched in their products, it’s pretty hard to leave.
And you can join the industry’s rally.
Buy a Technology ETF for Massive Gains
There’s an exchange-traded fund (ETF) that I’m looking at now, and it offers a great opportunity.
The iShares U.S. Technology ETF (NYSE: IYW) has a portfolio of companies primarily in software and IT services, semiconductors and computers.
As I said earlier, a business that relies on one or a few of these products to operate won’t switch to another product just to save a few dollars. It’s not worth it.
This is not a case where consumers won’t pay up for a company’s product — unlike Kraft Singles.
Since the beginning of the year, IYW is up more than 24%, despite a trade war with China. Over the long term, IYW should continue to march higher as it fills a vital need in a company’s ecosystem.
Now, in my newsletter Alpha Investor Report, I steer my subscribers clear of name brands in technology that are losing market share.
My 35-plus years of experience in the stock market have allowed me to develop a way to know what to look for in a company, and how to determine its underlying value.
I do the heavy lifting and let you enjoy the rewards of your investments. Click here to learn more about how to make the most out of your money.
Editor, Alpha Investor Report
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