The Most Powerful (But Ignored) Sign Of A Successful Investment
David Tran arrived in Los Angles from Vietnam in 1978 with no job and broken English. Yet, he was determined to achieve the "American Dream." And he did just that... creating a brand that is now recognizable across the United States.
More impressively, Tran accomplished this without hiring a single salesperson or spending a cent on advertising. Even today, his company doesn't have a Twitter (Nasdaq: TWTR) handle or Facebook (Nasdaq: FB) account.
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You might not be familiar with Tran's company, Huy Fong Foods, but you've probably come across his product in the red (or rather, clear) bottle with a green cap, sporting a rooster on the front. If you're still at a loss, I'm referring to the famous Sriracha Hot Chili Sauce. The Vietnamese chili sauce was declared the ingredient of the year in 2010 by Bon Appetit magazine, and Cook's Illustrated called it the best-tasting hot sauce in 2012.
As Tran's popular Sriracha sauce began taking the United States by storm, it kicked off a "sriracha" revolution (the term originated from the name of a city in Thailand). Other companies began capitalizing on the sriracha craze by marketing their own chili hot sauce and calling it sriracha. Even Lay's potato chips rolled out a sriracha-inspired chip.
Surprisingly, Tran has never tried to Trademark the Sriracha name -- and he claims he has no intention of doing so -- he did trademark the famous rooster logo and distinctive green cap. But this means anyone can use the term sriracha and claim it as their own.
However, ask any spicy-sauce aficionado about sriracha, and the red bottle with green cap sporting the rooster logo is what springs to mind. This is the power of what a brand (and great product) can do. No matter how many knock-offs or imitations come to market, it's Tran's Sriracha Hot Chili Sauce that is most closely associated with "sriracha." Sriracha is synonymous with the "red" bottle with green cap. That's the power of effective branding (whether Tran intended it or not).
Powerful Brands = Long-Term Success
You know how powerful a brand is when it conjures up a specific image, or replaces the general term for a word, or becomes a verb. For instance, today you'll likely hear someone say "Google it" instead of "look it up" in reference to Alphabet's (Nasdaq: GOOGL) search engine Google (the second most valuable brand in the world, according to Forbes, with a brand value of $132.1 billion).
Another show in brand dominance is "Kleenex," which has become a general term for facial tissue, even though the name Kleenex is a registered trademark of Kimberly-Clark (NYSE: KMB). A more popular one these days is "Venmo," as in "Venmo Me," a reference to the peer-to-peer money exchange platform Venmo that's owned by current holding PayPal (Nasdaq: PYPL). Or maybe you'll hear someone ask for a "Coke" when referring to a soda flavor, despite the name being a shortened handle for Coca-Cola, owned by the Coca-Cola Company (NYSE: KO) -- the sixth most valuable brand in the world.
If you're looking for a product in a specific category, you're likely to go with the product that has the more recognizable -- and, presumably, trusted -- brand name. For instance, as a new parent shopping for diapers you might be guilted into flocking to a brand that you're aware of, such as Pampers -- the world's 57th most valuable brand.
I talked about the power of brands in this article, when I detailed 12 characteristics for identifying the world's greatest businesses. The first trait I talked about was how brand loyalty allows the world's greatest businesses to sell their products at premium prices.
Apple (Nasdaq: AAPL) -- the world's most valuable brand -- is a great example. Although cheaper alternatives exist, more people will pay a premium for one of Apple's products. Thanks to the power of its brands, Apple has generated some of the greatest returns in stock-market history. By contrast, companies that compete solely on price are constantly under pressure to keep prices (and profit margins) low; otherwise, they risk losing customers.
Action To Take
In the previous article I mentioned earlier, there is an important takeaway that still applies:
If you boil it all down, our ideal stock is a company that dominates its market, provides a product or service that is essential to daily life, and returns the bulk of its cash to shareholders in the form of dividends and share buybacks. When you can pick up these types of stocks at fair prices, you're all but ensured to reap the rewards over the long haul.
It should come as no surprise that many of our current and former holdings over at Top Stock Advisor boast powerful brands. In fact, nine current portfolio holdings are in Forbes' list of the top 100 most valuable brands in the world.
Now, I must confess that my most recent pick didn't make Forbes' top 100 most valuable brands list, but that doesn't mean it doesn't have brand power. In fact, this company is a conglomerate that holds multiple recognizable and powerful brands. It's one of the largest branded apparel companies in the world, with a history going back over 135 years. It's a former Top Stock Advisor holding, and right now shares of the company are "on sale."
If you'd like to get the name of this pick (plus more picks that harness the power of brand recognition), then I have good news for you... My latest report -- The Top 10 Stocks For 2019 -- is full of picks that leverage powerful brands, monopolistic traits, shareholder-friendly policies, long-term world-changing trends and more... Simply put, we think it's your best bet for building wealth in 2019 and beyond. You'll find all the details here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.