When it comes to things like cars, food, clothing and other products many people go for the top of the line brands, usually without even giving it a second thought. The reason this occurs is because they know that, in most cases, the brand that they are buying either is more reliable, will last longer, tastes better or looks better. Top brands sell well because their name signifies that they are reliable and people count on them to deliver.
Interestingly enough, many people don’t seem to feel the same way when they purchase stocks on the stock market. For example, you’ll find that when it comes to supermarkets, more people are buying stock from Safeway (SWY) or Kroger (KR) then they are from Whole Foods Market (WFMI), which is clearly the superior brand in many different ways.
It’s the same with many other stocks, including for example retail stores that sell audio and video components. Millions of dollars have been lost on subpar electronics stores and their stocks when Best Buy (BBY) is far and away the one that delivers sustainable profits on a consistent basis in that portion of the retail sector.
Ask yourself this; why would you want to own stock in Ford (F) or General Motors (GM) when stock in top-of-the-line brand Toyota (TM) is taking share and making excellent profits? The other two are simply 2 stocks that are down a lot and priced cheaper? While it’s a safe bet to say that consumers are drawn to the lower cost of GM’s and Ford’s stocks, the fact is that stock in Toyota is not only cheaper (at least at the moment) but it’s also connected to one of the best car manufacturers in the world.
Unfortunately there are far to many people that are simply unwilling to purchase the top brands when it comes to stocks because they feel that, for one reason or another, they aren’t getting the best value for their money as these stocks are usually higher priced. The fact is, it’s very hard to find a bargain out in the world of secondary and even tertiary companies. Simply put, when it comes to things like price-to-earning multiple, the more expensive stock is invariably worth investing in because, at the end of the day, investing in the top brands will give you a lot more peace of mind than investing in lower tier brands. Just like you know you can count on Toyota or Honda to deliver a much better car value, their stocks will deliver a better value as well.
Let’s take a look at one more example. 2 of the biggest retail pharmacies in the US, Rite Aid (RAD) and Walgreen (WAG). While it seems that Rite Aid is in turnaround mode all of the time and their stock is a bit cheaper than Walgreen (and so more attractive as far as stock purchasing power goes) they simply don’t deliver either in their stores or on their stocks. On the other hand, Walgreen is a much better company with stronger returns and many other factors going for it. Is paying a higher price for their stock a bad idea? Certainly not and, in almost all cases, you will never regret paying for stocks from top brands because they very rarely let you down.
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