The Man Behind FUBU Likes These Stocks
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Daymond John, the man who founded FUBU, appeared on Jim Cramer’s Mad Money Thursday evening. John prides himself on being a brand image expert, picking stocks on the strength of their brand. For example, in the past, he’s been bullish on Under Armour, which has performed well despite trading at a fairly steep valuation.
Walgreen becoming the brand for the “everyday person”
John said he liked the new direction Walgreen was taking. Specifically, he liked the redesign of Walgreen’s stores, explaining that they were starting to look “sexy” and “like an Apple store.”
Walgreen has been revamping its stores in recent months. In particular, the company has been reinventing its pharmacy section, adding screening rooms and kiosks for prescription refills, with the goal of connecting customers with their pharmacists.
In the last year, shares of Walgreen are up nearly 50%, well outperforming the broader market. If John is right, and the company’s makeover can spark a greater connection with its customers, shares might head even higher from here. At the same time, competitors like Rite Aid continue to struggle.
Urban Outfitters appeals to the young customer
John’s specialty remains in clothing, as he turned FUBU into one of the hippest brands of the 90s. On that front, he likes clothing retailer Urban Outfitters because it appeals to a younger demographic.
He said it was “a little quirky” and not “run of the mill.” John said Urban Outfitters stores excite people when they go in.
Like Walgreen, Urban Outfitters has been a great performer over the last year, rallying nearly 40%. The risk to the company is that its clothing could fall out of fashion, but if John’s right, there could be further upside from here.
However, not everyone is as bullish. Analysts at BMO downgraded the stock in February, citing struggles at its Athropologie brand.
Nike is moving into consumer tech
“Nike is making technology,” John said. “They are going to tap back into you.”
John was likely referencing some of the company’s recent initiatives like its Nike+ fuelband. The device sold well when it was released last year, but reviews have been mixed. In theory, the band works with a smartphone to keep track of a user’s daily activity.
As wearable technology becomes increasingly popular (Apple’s iWatch, Google’s Glass) Nike could be poised to benefit. Athletes might be the ones to make the best use of the technology, as tracking training regimens can be beneficial.
But, perhaps a similar stock could be a better investment. John’s old favorite Under Armour has outperformed Nike over the last year.
Yahoo’s new CEO is reinventing the company’s brand
John appeared quite enamored with Yahoo!’s new CEO Marissa Mayer, arguing she was poised to “take that thing through the roof.”
Prior to Mayer joining Yahoo! last summer, the company was an aging Internet giant. Now, John believes Mayer is going to make the company cool once more. For evidence of this, he cited the company’s efforts to work more closely with Apple.
Yahoo! partnering with Apple would be, in John’s words, “brand leveraging” -- associating Yahoo’s brand with Apple in the hopes that Apple’s image would rub off on Yahoo!.
Mayer certainly seems to be taking aggressive actions at Yahoo!, although it’s too early to say whether or not she can save the core Yahoo! business. Most investors in the company seem to value it more for its foreign assets rather than Yahoo! itself.
If Mayer can work a deal with Apple, and make core Yahoo! cool once more, the stock could have room to run.
Facebook is one of the most recognized brands
John admitted that Facebook has been struggling since its IPO, but argued that it remains well positioned due to the sheer recognizability of its brand. “Everybody sees it every single day,” he explained.
Coming up on the first anniversary of its IPO, shares of Facebook remain down over 25%. The company has been taking actions to bolster its presence on mobile devices, like rolling out Facebook Home for Android.
Really, with so many people already using Facebook, brand power seems somewhat irrelevant. Instead, Facebook is a story of advertising -- whether or not it can successfully leverage its user base to advertisers.
Investing in brand names
It’s hard to quantify, but brand name and image can go a long way. Companies as diverse as Apple and Coca-Cola have relied on the strength of their brands to build their businesses. The trick is properly assessing the company’s relative brand power -- is the company cool? Or has it been surpassed? John’s own FUBU, for example, has faded noticeably over the last decade.
Nevertheless, if investors are looking at a company, particularly one that sells directly to the consumer, gauging the relative strength of its brand is a must.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Facebook and Nike. The Motley Fool owns shares of Facebook and Nike. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!