Stick with stocks of enduring brands for handsome returns through thick & thin

We should not underestimate the significance of large, enduring firms
— Marcus Wallenberg, ex-Chairman, SEB, North European financial group

Wallenberg’s statement underlines one key thing —companies with enduring products can better cope with the ups and down of the stock market than those without them.

Companies with enduring brands generally have a diversified portfolio, sell their products worldwide and generate consistent revenue and operating profit margins.

Market experts often term such stocks as defensive, and say one can consider them to protect their portfolios to ride occasional headwinds.

When you think of Nestle, the first thing that comes to mind are noodles; a certain name like Colgate-Palmolive makes you think of a toothpaste. They are the ones called enduring brands.

Nestle India’s brands such as Maggi noodles and Nescafe coffee are consumed across the world. Even after the fiasco over lead content in Maggi, the product saw robust response from consumers when it returned to stores.

In fact, some e-commerce websites sold their stock of Maggi noodles within minutes of the re-launch when the dispute ended.

A consumer does not think twice while purchasing such products. Despite the trouble, shares of the company managed to beat market return and advanced nearly 2.50 per cent since the beginning of 2016 till date.

For the quarter ended September 30, 2016, Nestle reported over two-fold growth in net profit at Rs 269.39 crore compared with Rs 124.20 crore reported for the corresponding quarter last year.

Jay Prakash Gupta, Director and CEO, MDirect, said: “Companies with enduring brands or products are generally defensive in nature and are consistent performers in terms of stock returns. These companies generally report healthy operating profit growth on a year-on-year basis.”

Gupta said these stocks are good options to think of in difficult times. “I believe companies like Gillette India and Procter & Gamble Hygiene & Healthcare (P&G) are among the safest bets that one consider for protecting a portfolio from contingencies,” he said.

The share price of Gillette India has declined 8 per cent this year till date, while that of P&G has surged over 20 per cent in the same period.

Market experts said one should look at the company’s past track record of management, corporate governance and the number of countries it serves.

In the smallcap space, L&T Food’s Daawat Basmati rice has emerged as an enduring brand. With Bollywood superstar Amitabh Bachchan as its brand ambassador, the product is available in over 50 countries.

Shares of the company have outperformed the benchmark Sensex in 2016. The scrip has surged nearly 5 per cent to Rs 279 as of December 20 from Rs 267 on January 1, 2016.

Ambareesh Baliga, independent market analyst, said: “Enduring brands mostly help companies to sail through difficult times, like we saw in the case of Nestle India. These companies are extremely safe from an investment point of view. Chances of a sharp bounceback in such stocks are strong in case of severe correction. One should look at the global brand value of such companies before investing. One can also consider Bata India, Asian Paints, Pidilite, P&G and HUL as their products are available in markets for ages.”

Pidilite Industries is a domestically-grown multinational adhesives manufacturing company. It also produces art material, construction chemicals and other industrial chemicals. The Fevicol brand of adhesives is the most famous product of the company.