3 Long-Term Brand Bets With A Great Track Record That Display Significant Potential

Throughout his legendary investing career, Warren Buffett has always stressed the importance of seeking out companies that have a durable competitive advantage and, similarly, an impenetrable brand moat. Marquee examples of this in Buffett’s own Berkshire Hathaway’s (NYSE: BRK-B) portfolio include Apple AAPL, Coca-Cola KO, and Bank of America BAC, among others. 

Brands offer companies pricing power and consumer recognition that, oftentimes, render competition from new market entrants all but impossible. In many businesses, this translates to decades of incremental growth in sales and earnings and subsequently, quality, predictable stock returns. 

If we consider investing to be the search for opportunities that offer a high probability of a return of capital along with a reasonable likelihood of an adequate return on that capital over a long timeframe, investing in leading brands that provide a durable competitive advantage is about as good as it gets for today’s investor. Below, Benzinga examines three long-term opportunities that could offer what investors are looking for.   

Autozone AZO

This Memphis, Tennessee-based retailer of aftermarket automotive parts has gained quite a following on Wall Street due to the stock’s incredible long-term performance. Consider that in April of 1991, an AZO share traded hands for $7.91. Today, AZO sits at $2,678.00 – a better than 37,000% return in a little more than 30 years. That is a tremendous track record of creating shareholder value. 

The stock has also been on quite a tear over the last five years, surging better than 300% to new all-time highs above $2,670.00. The performance of the share price has been driven by consistent, incremental growth in both earnings and revenue year after year. In fiscal 2022, sales set a new record of $16.25 billion, and that translated into EBITDA of $3.71 billion. 

This is a very high-quality company with a high-quality management team and a tremendous brand in a great business. Given Autozone’s sterling track record, valuation remains somewhat reasonable, with the stock trading at around 20 times forward earnings estimates and at an EV/EBITDA multiple of 16. 

PepsiCo PEP

Investors that have been able to see the forest for the trees have been riding this large-cap growth story for many years. Pepsi possesses not just one ubiquitous brand, but many. In addition to the instantly recognizable Pepsi brand, the company also owns and markets Frito-Lay products, Doritos, Tostitos and Gatorade among many others. 

The investment thesis here was not complicated even a decade ago and it remains as straightforward as it is compelling. PepsiCo has a tremendous international footprint in an extremely attractive high-volume business where it is positioned incredibly favorably due to its brand portfolio. The stock is sitting at new all-time highs just below $190.00 – a position that PEP has found itself in over and over since the stock’s 1983 IPO. 

Over the last five years, shares have added better than 86%. Since debuting on the stock exchange, shareholders have been rewarded with returns approaching 9,000%. Not surprisingly, Wall Street has PepsiCo priced at a premium – roughly 25X forward earnings estimates. Nevertheless, there has hardly ever been a bad time to buy this stock with a long-term view and investors can also collect a yield slightly below 3% at current levels. 

Costco Wholesale COST 

One of the more compelling reasons for investors to consider adding Costco to their long-term holdings is the fact that none other than Charlie Munger, Vice-Chairman at Berkshire Hathaway, is a significant individual shareholder and speaks in glowing terms about the company regularly. 

The stock has stagnated a bit over the last couple of years, but if Costco’s long-term performance is any predictor, COST is just consolidating prior to another big move higher. That might even seem to be the only reasonable conclusion that can be drawn in light of decades of tremendous outperformance. 

Since its 1983 IPO, shares have risen almost 15,000%. Not surprisingly, COST has outperformed in a huge way over the last five years, climbing 156%. Just for good measure, the stock is also outperforming in 2023, notching a gain of 11% vs. 6.50% for the S&P. 

Similar to both Autozone and PepsiCo, Costco’s stock has benefitted from years and years of consistent revenue growth and the company set another record in 2022 with sales climbing 16% to $227 billion. Naturally, Wall Street has caught on to the Costco story, and the stock is currently relatively richly valued – trading at a forward P/E of 35 and an EV/EBITDA multiple over 21. Investors looking at this name for a long-term hold will appreciate COST’s 0.80% dividend yield at current levels.  

Featured photo by Henry & Co. on Unsplash