3 Best Stocks to Invest in Big Brands

By Markets Fool.com

Investing in businesses with powerful brands can be one of the simplest and most effective strategies to achieve superior returns over time. Valuable brands create product differentiation and pricing power, which enables companies to deliver above-average profitability for investors. Over the years, this is generally reflected in market-beating returns for these stocks.

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Apple , Coca-Cola , and Google are among the most recognized brands in the world, and they are remarkably attractive candidates for investors looking to position their portfolios in companies with unique brand power and rock-solid competitive strengths.

Apple
Apple is ranked as the most valuable brand in the world by both Interbrand and Forbes magazine. These kinds of rankings can always be debated, but there is no denying Apple benefits from truly spectacular brand differentiation. Fortunately for investors in this stock, this means stratospheric profitability and persistent customer loyalty for the company.

Source: Apple.

Most smartphone manufacturers must aggressively compete on price to sustain market share, but that's not the case for Apple. Far from that, the company last quarter even announced a $50 increase in the average selling price in the iPhone line, to $687 per unit. Consumers do not seem to resent the price increase, as global unit sales grew by a jaw-dropping 46% during the period.

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It takes an incredibly strong business to deliver both booming unit sales and rising prices when industrywide prices are under pressure, and this allows Apple to produce mind-blowing profitability. According to data from Strategy Analytics, Apple retained an amazing 89% of all smartphone industry operating profit during the fourth quarter of 2014. On a similar note, Canaccord Genuity estimated that Apple captured 93% of profits in the mobile industry during the period.

Apple is delivering new products and services with initiatives such as Apple Watch, Apple Pay, and a revamped Apple TV. While innovation is always risky, brand differentiation and customer loyalty can be powerful assets in securing demand for Apple's new ventures.

Coca-Cola
When it comes to brand strength in nonalcoholic drinks, Coca-Cola is the undisputed industry leader. Interbrand most recently ranked the brand at No. 3 globally behind Apple and Google, while Forbes put Coca-Cola in fourth place, behind Apple, Microsoft, and Google.

Source: Coca-Cola.

Its flagship Coca-Cola and Diet Coke brands are the leading brands in soft drinks, giving the company both the first and second market position in the industry. Across its global portfolio, Coca-Cola owns 20 different brands that each make over $1 billion in annual revenue, a significant increase from 14 such brands five years ago.

Consumers in developed countries are cutting back on soda consumption because of health considerations, but Coca-Cola is adapting to changing demand via an increased focus on healthier choices. Gold Peak Tea, Fuze tea, and I LOHAS mineral water, which is sold in Japan, joined the company's portfolio of billion-dollar brands in 2014, demonstrating that Coca-Cola is rapidly moving in the right direction. Among its 20 billion-dollar brands, 14 are still drinks with a better health impact than traditional sodas.

As a mature company in a stable industry, Coca-Cola can't be expected to deliver the same growth as Apple. On the other hand, the company is one of the most solid and reliable dividend payers around: Coca-Cola has paid uninterrupted dividends since 1920, and it has increased those payments over the last 53 consecutive years. At current prices, Coca-Cola stock pays a dividend yield in the neighborhood of 3.2%.

Google
When a brand becomes a synonym for a product or a service, then you know the brand is deeply ingrained in consumers' minds. Google is so ubiquitous that it has even become a verb, as consumers "google" for information instead of searching for it online.

Source: Google.

According to data from NetMarketShare, Google owns a gargantuan 62.3% of the global desktop search market. Baiducomes in a distant second with a market share of 19.8%, but this is mostly due to the company's particular strength in China. When it comes to the search market on a global scale, Google enjoys unparalleled leadership.

The shift toward mobile computing is hurting online ads prices, but Google is still remarkably well positioned to continue thriving under the new paradigm. Assets such as its Android mobile operating system, along with enormously popular services and applications such as Chrome, YouTube, and Google Maps, among countless others, almost guarantee Google will remain the most dominant force in the Internet for years to come.

Google increased its revenue by 19% in 2014, reaching $66 billion. The business model is remarkably profitable, as Google keeps nearly 25% of revenue as operating profit. Investors would be hard-pressed to find another company as big as Google delivering those kinds of numbers, even if they "google" that information.

Successful investing does not need to be overly complex or sophisticated. It all comes down to finding companies with strong competitive advantages, and brands can be one of the most powerful sources of differentiation. As it turns out, many of the same companies you know and appreciate as a consumer can be profitable investment opportunities, too.

The article 3 Best Stocks to Invest in Big Brands originally appeared on Fool.com.

Andrs Cardenal owns shares of Apple, Google (A shares), and Google (C shares). The Motley Fool recommends Apple, Baidu, Coca-Cola, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Baidu, Google (A shares), and Google (C shares) and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.