Does the Super Bowl Help Boost Advertisers' Stock Prices?
Investing in the shares of advertisers works because companies shelling out big bucks for air time are generally confident about their futures.
Ah, Super Bowl Sunday. The ferocious competition, the cheap shots, the wretched excess -- and that's just the commercials. Not only are ads sometimes the spectacle’s best part, but you can bank on the stocks of companies that buy them.
Research shows that the effect isn't like the brief buzz you get from a bellyful of Coke and Doritos (watch for their commercials during the game), though that effect does occur. On average, companies that advertise during the Super Bowl outperform Standard & Poor's 500-stock index by more than one percentage point in the ten trading days from the Monday before the big game to the Friday afterward. This is according to marketing professors Chuck Tomkovick and Rama Yelkur, at the University of Wisconsin-Eau Claire.
Chart: See How Shares of Super Bowl Advertisers Performed Last Year
And quality doesn't count. Tomkovick and Yelkur, who studied 15 years' worth of Super Bowl ads and the corresponding share-price performance, say the stock effect holds irrespective of how well the ad scored on USA Today's ad meter or how well the ad was executed. Even the overall performance of the industry in which the company operates doesn't dampen the boost.
The long-term effects are more interesting. In 2009 and 2010, nearly two-thirds of the Super Bowl stocks (41 out of 62) were still outperforming the S&P 500 at the midyear mark (June 30 for 2009 and 2010), with the gains more than double the size of the losses, according to the professors. And about 60% of the Super Bowl stocks (38 out of 62) were still outperforming the S&P 500 at year-end, with the gains again more than double the losses.
Tomkovick and Yelkur think the Super Bowl ads aren't, by themselves, responsible for the effect. Instead, they're the most prominent piece -- and sometimes the culmination -- of a larger marketing campaign to promote products. For example, promotion for advertiser E*Trade began when CBS pre-game show host James Brown interviewed the famed E*Trade baby before the Jets-Steelers playoff game (baby is due to be interviewed before the Super Bowl, too).
And while there were no milk jokes this time, the baby's football predictions generate laughs. When asked about whether the Steelers had a chance of winning the game, the baby replied, "Sure they have a chance. A blind squirrel has a chance of finding a nut, but I wouldn't start making pecan pie if I were him." And those laughs lead to something more important to marketers: buzz. (Of course, given the outcome of the AFC championship game -- Pittsburgh won -- perhaps baby should stick with stocks.)
Aside from entertainment value, Super Bowl ads also send a message to consumers and investors that a company is strong and confident. It had better be. For this year's Super Bowl, which will pit the Pittsburgh Steelers against the Green Bay Packers on February 6, Fox is charging a record $2.8 million to $3 million for 30-second spots, up from the $2.5 million to $2.8 million that CBS charged last year.
Score a Touchdown with These 3 Stock Picks
While the professors' research is compelling, we think it's wise to add a little fundamental analysis before buying Super Bowl stocks. After reviewing the candidates, we have three picks, and a whole category to avoid.
The Anheuser-Busch Clydesdales will be back yet again in Super Bowl ads, and just like the longevity of its ad campaign, Anheuser-Busch InBev (symbol BUD) represents a good long-term investment. The Belgium-based brewer of Budweiser, Michelob and Stella Artois has made sure it will be the only beer advertiser in the Super Bowl through 2014. Although its share price has taken a haircut recently, falling from about $64 on October 25 to $56.47 on January 27 due to concerns about weakness in U.S. sales and floods in Brazil, the selloff offers a good buying opportunity (all prices and related data are through January 27).
Anheuser-Busch InBev is the product of the purchase of the iconic St Louis–based beer maker by In Bev, which wisely adopted Anheuser-Busch’s snappy trading symbol.
The company's foremost brands now operate in the top five most profitable beer markets in the world: the U.S., Brazil, Russia, Canada and Mexico. It owns a 50% stake in Grupo Modelo, the Mexican brewer that owns the Corona brand and that has 70% of the Mexican market.
The BUD growth story is mainly about Brazil. In Brazil, where millions are moving into the middle class, BUD has a 70% lock on the beer market. Credit Suisse analyst Anthony Bucalo estimates that Latin America will provide 80% of the company’s projected sales and profit growth until 2020. Its presence in Brazil will offset weak sales in Western Europe and North America. Analysts expect BUD earnings to increase 20% in 2011, to $3.77 per share.
Paramount Pictures is again a major Super Bowl advertiser, and that should contribute to the momentum of its parent company, Viacom (VIA-B) Paramount's five spots will promote upcoming films Captain America: The First Avenger, Rango, Super 8, Thor and Transformers: The Dark Of The Moon. Viacom, which also owns and operates MTV Networks, VH1, Nickelodeon and Comedy Central, had a great year in 2010, as ad sales for its networks bounced back from depressed, recession-induced levels.
Viacom produces popular shows --including MTV's Jersey Shore, Nickelodeon's Victorious and Comedy Central's Daily Show with Jon Stewart. Ad sales have grown for three consecutive quarters, and Viacom’s executives predict that growth will continue. The company also began distributing a quarterly dividend and resumed its stock-buyback program last year. Analysts, on average, expect earnings to grow 14% this year, to $3.32 per share; they project that earnings will also grow 14% in fiscal 2012, to $3.78 per share. Viacom, at $42.51, trades at 13 times estimated 2011 earnings.
PepsiCo (PEP) is back in the game this year with seven ads. The snack-food and beverage conglomerate is investing more in emerging markets, especially China. Expanding into those markets will also help Pepsi offset weakness in the U.S. and Western Europe, where consumers are cutting back their spending. (Pepsi currently gets 40% of its revenue outside the U.S. and Canada.)
Pepsi, at $65.56, trades at 14 times estimated 2011 earnings of $4.59 per share, while competitor Coca-Cola (KO) trades at 16 times this year’s earnings. Pepsi's shares offer a dividend yield of 2.9%.
Flag on These Plays
As a group, carmakers will dominate Super Bowl XLV, but be wary of their stocks. Eight automakers (up from six in 2010 and five in 2009) have bought 15 ads, including General Motors (GM), which will be running its first Super Bowl commercial in three years, and Mercedes-Benz, which will run its first ever. Mercedes vehicles are made by Germany's Daimler (DDAIF.PK).
The breadth of ads from the auto industry is a sign of confidence in their business, says Standard & Poor's analyst Efraim Levy. Automakers are in the early stages of a multiyear global growth trend, and Levy estimates that U.S. light-vehicle sales will increase by 13% in 2011. Also, during the recent recession automakers cut costs so profits will rise quickly with sales.
But investors have already sniffed out the auto industry's comeback and driven up stock prices of the major players: GM, Honda (HMC), Toyota (TM) and Ford (F), although shares of Ford were crushed on January 28 following a disappointing fourth-quarter earnings report.
As for E*Trade, whose baby commercials rank among the funniest during the Super Bowl (second only, perhaps, to Betty White getting sacked for want of a Snicker's bar), things are looking up for the company, but we remain cautious on the stock.
E*Trade's online brokerage business is seeing a rebound in trading activity. The company says daily average revenue trades -- a key measure for the online brokerage industry -- were up 19% in the fourth quarter from the third quarter of 2010, and January is running 23% higher than December. New brokerage accounts also picked up, adding 54,000 in 2010. (E*Trade tied for third in our rankings: Best Online Brokers for 2011.)
However, its mortgage business is a cause for concern and could weigh on earnings in 2011. After an unsuccessful foray into the mortgage business over the past decade, E*Trade has rebuilt its balance sheet, but it is still writing down its bad loans and getting back to its core online-brokerage business. Most troubling is that the company boosted reserves for loan losses in the fourth quarter by $42 million due to uncertainty surrounding future bad loans. On the upside, E*Trade’s loan portfolio continues to shrink as a piece of its overall business.