It takes countless hours of preparation and teamwork to make it to the winner’s podium on Super Bowl Sunday. For advertisers, that is. And that raises the question of whether winning the Super Bowl ad championship makes a company so compelling that you should buy its stock.
Looking to Super Bowl advertisers for investing ideas is hardly a novel idea. In fact, a study by the University of Wisconsin-Eau Claire once found that, historically, if you had purchased Super Bowl advertisers’ stocks the Monday before the game and sold them the Friday after, on average you would have beaten Standard & Poor’s 500-stock index by 1.3 percentage points over that period.
This is not to suggest that Super Bowl advertisers tend to be better-than-average companies. After all, anyone with $2.5 million to $2.8 million to spare could have purchased a 30-second spot this year. And you might rightly wonder whether a good chief executive might be more interested in conserving cash in our debt-burdened, still-struggling economy than in taking a flier with an ad that may or may not tickle the fancy of 95 million viewers -- and may not result in significantly higher sales even if it does.
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Whether you’re drinking bottles, cans or draft come game day, chances are good you’ll be supporting top advertiser Anheuser-Busch InBev (BUD). Fans may regret that the King of Beers now reports to Belgian offices (management’s self-consciousness on this point may account for Budweiser’s new slogan, “The Great American Lager”). But InBev’s 2008 purchase of Anheuser-Busch assembled a formidable list of brands under one roof. In addition to Bud and Bud Light, AB InBev produces Stella Artois, Leffe, Hoegaarden, Beck’s and Michelob. The company also holds a 50% stake in Grupo Modelo, the Mexican brewer of Negra Modelo, Pacifico and Corona. AB InBev brews the top-selling beer in Brazil. And even beer snobs can appreciate that Bud Light is the world’s best-selling beer.
But the costs of conglomeration left AB InBev bloated with debt. InBev took on about $45 billion in debt to finance the deal, and it has been selling assets and frantically slashing costs to reduce that load. The stock, at $48.11, trades for 15 times estimated 2010 profits per share of $3.32. That isn’t exorbitant, but it doesn’t compensate investors sufficiently for the risks.
Tee-totaling on Game Day? Dr. Pepper Snapple Group (DPS), a first-time Super Bowl advertiser, may suit your investing tastes. The newly independent company, spun off in 2008 from the former Cadbury Schweppes, makes, bottles and distributes 7UP, A&W, Canada Dry, Schweppes, Snapple and others in addition to its flagship soda.
Dr. Pepper’s weakness is its limited geographic exposure and product lines. People don’t drink as many sugary sodas as they used to, and most of the growth in the domestic beverage markets is coming from enhanced waters and energy drinks, neither of which is a company stronghold. And with 90% of its sales generated in the U.S., the firm can’t depend on growth from abroad. Still, analysts expect the company to expand annual profits at a 9% pace over the next three to five years. The stock’s reasonable valuation -- it trades for 12 times estimated 2010 profits of $2.24 per share -- and 2.2% dividend yield provide investors with some margin of safety.
Although PepsiCo (PEP) will be advertising on February 7 as usual, you won’t see ads flogging any of its multitude of beverage brands, which include Tropicana, Dole, Aquafina, Mountain Dew and Gatorade (and its soon-to-be-discontinued Gatorade Tiger line). Instead, you’ll see the three ads for Doritos that Pepsi has chosen as winners of a homemade-video contest.
Pepsi has proven its ability to generate new products and make smart acquisitions to keep up with consumers’ tastes, which lately has meant coming up with healthier brands. About one-third of profits come from abroad, which should help to drive the 10% annual profit growth analysts expect from Pepsi over the next three to five years. At $60.25, investors can pick up the stock for an attractive 14 times estimated 2010 profits of $4.16 per share and a 3.0% dividend yield to boot. Its stock is worth a look.
You might be surprised by one name on the list of advertisers: Chrysler will be running a 60-second spot promoting its Dodge Charger. Alas, you can’t buy shares in the newly reorganized Chrysler Group, which emerged from bankruptcy reorganization as a limited-liability company, owned jointly by Fiat, the U.S. government and the pension fund of an autoworkers union.
Although Chrysler will be the only U.S. auto company advertising during the Super Bowl this year, investors should find much to like in Honda Motor Co. (HMC), one of four foreign carmakers buying air time. To be sure, the Tokyo-based automaker has plenty of work to do if it wants to overtake Toyota, whose Prius is the world’s top-selling hybrid. To that end, Honda will be rolling out several new hybrid models over the next few years.
Honda currently claims about 11% of the U.S. market, but the real growth is in China, where Honda’s sales climbed 23% in 2009 from the previous year. The one analyst from a U.S. brokerage firm who follows Honda is projecting a handsome 26% earnings growth over the next three to five years. Honda’s American depositary receipts, at $34.51, trade for 21 times estimated profits of $1.65 per ADR for the fiscal year ending March 2011. Analysts expect earnings of $0.91 per ADR for the current fiscal year.
Some companies avail themselves of the Super Bowl spotlight to throw a Hail Mary -- not much likelihood of success, but big rewards if the pass is completed. You could argue that two dot-coms that advertised in 2000 -- E-Trade (symbol ETFC) and Monster Worldwide (MWW) -- threw touchdown passes in that Super Bowl merely by surviving. That year, a dozen of the advertisers were dot-coms, many of which went on to implode as the tech bubble burst. One firm, stationery supplier OurBeginning.com, purchased no fewer than five ads that year. The site went bust in 2002.
Both E-Trade and Monster will be back for the 2010 Super Bowl -- E-Trade with another round of its hysterical talking-baby commercials. But as much as you may like E-Trade’s ads (not to mention its charts, research and commission-free trades), you might want to pass on the discount broker’s own shares. The firm is still reeling from a poorly timed venture into the mortgage business, which has driven per-share losses in each of the past nine quarters. After rallying to $1.62, the stock is still down 94% from its pre-crisis high in 2007 (all share prices are as of the January 26 close).
When businesses are cutting payrolls, they’re unlikely to shell out for the services of online job boards such as Monster.com. That simple fact has fueled Monster’s earnings decline in recent years, from $1.17 per share in 2006 to an estimated $0.03 per share for 2009. But the company has worked hard to slash costs over that period. And thanks to the power of its brand, Monster has become the top or second-to-top online job board in about 25 countries outside of the U.S. A turnaround in the U.S. job market could fuel further gains in the stock, which, at $15.95, is up 61% over the past year.
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