Maybe, but I don't think so. It's really very basic: People gravitate to what's familiar, whether they buy Coca-Cola to drink or to put into their stock portfolios. And the most familiar companies are the ones with the biggest ad budgets.
My contention is that big companies like Microsoft, Wal-mart, IBM, General Electric and Lucent are way up in value -- while the average stock languishes -- because they are all aggressive, sophisticated -- and frequent -- advertisers.
And it doesn't matter if they do corporate advertising or product advertising or both, as far as stock buyers are concerned. The total impression of the company is what influences both institutional and individual investors.
Of course that's not to say that all companies with big ad budgets do well in the stock market. Procter & Gamble, the biggest advertiser of them all, did pretty well this year on the New York Stock Exchange, but a prediction of lower earnings for the rest of this year has hammered the stock. And cereal king Kellogg, on the heels of lower than expected second-quarter earnings and warnings of a tough second-half, saw its stock sink to a 52-week low last week.
One other caveat: Companies (like Coca-Cola, GE, Colgate-Palmolive, Clorox -- whose stock has been booming lately -- and Ford) whose corporate names are also the names of most of their products have an advantage over companies like P&G and American Home Products, which market brands that don't carry the corporate moniker. If I were the head of P&G, I'd start calling my best-selling product Procter & Gamble's Tide, or maybe P&G's Tide, since the company's stock symbol is PG.
A readily recognizable stock symbol also helps. Investors don't have to guess when IBM flashes across the screen. The symbol for the three fast-food restaurants that spun off from PepsiCo is YUM; that's cool. Young & Rubicam is YNR -- is that one reason the agency's stock has done so well? GE's is GE. Anheuser-Busch is BUD.
But, Colgate-Palmolive is CL. Coca-Cola is KO. Campbell Soup Co.'s is an "M'm! M'm!" bad CBP. Philip Morris Cos.' is MO. General Mills' is GIS. It's true that nobody doesn't like Sara Lee, but you've got to find it first -- its symbol is SLE.
Professional stock-pickers are having a tough time reconciling the fact that the large cap stocks, with sky-high multiples, are capturing the hearts and pocketbooks of investors. The Wall Street Journal reports the common explanation "is that fund managers need to stay fully invested, but, wary of how earnings problems can crater a stock, are disproportionately favoring the perceived security of blue-chip growth stocks."
But one analyst complained: "Tell me why Gillette is worth 50 times earnings or Coca-Cola is 55 with modest growth rates. There's no valuation in this market. It's lost all connection with valuation."
When consumers buy products, do they always look for value? More often they look for a familiar name they can trust. Why should buying stocks be any different?
Consumers of products and financial services know value doesn't mean much if it doesn't hold up over time. That's why they put their money on products and stocks that give them a high level of comfort.
It's only slowly becoming recognized that brand building encompasses not only building a premium price for your product but also a premium price for your stock.
In the 21st century, ad agencies will be measured the same way mutual funds are: How well their clients' stocks have fared over time. It might even develop that clients who stayed with one agency and who ran consistent advertising produced the greatest return for their shareholders.
Warren Buffet would be proud.