What’s in a Name?
One thing that many investors look for are big, safe, well established companies for investment. They want the big names they know, on the theory that those are the most successful companies. So here is a little quiz. Can you pick out the three big companies from this list?
Audiovox
Biogen Idec
La-Z-boy
Noble Corp
Prologis
WD 40
You probably guessed that it’s a trick question. Yes Audiovox, WD 40 and La-Z-boy are household names. But they have market caps (value of all outstanding stock) of $250 million,
$500 million and $800 million respectively. But Noble Corp is a huge oil driller with a market cap of $9 billion, Prologis is one of the largest REITs (real estate investment trust) with a market cap of $12 billion, and Biogen Idec is a big pharmaceutical company with a market cap of $14 billion. The companies you’ve never heard of are at least 10 times the size of the well known names. In fact those three are among America’s largest corporations and are in the S&P 500 large cap average. The other three are S&P 600 small cap companies.
It’s another lesson that when investing, you have to do your homework. Because the big names might actually be the small names when you take the time to look under the hood. Does that mean the big companies are better investments? Of course not. But is does mean we don’t pick stocks just because we know the name.