7 stocks with good brands you'd love to buy, but shouldn't

It was somewhat disappointing to read that the recent Brand Finance Global 500 most valuable brands of 2017 list included only seven Australian brands (all owned by listed top-20 companies on the ASX).

Bu then again, this represent 1.4% of the total which is not too far off the often-quoted '2% of world markets' that is the ASX.

Here's the list with the brands' respective rankings for 2016 and 2017:

It's interesting to note the huge fall in Woolies' ranking, previously 166 and now 240, and I wonder if this is to do with management's attempted changes to its loyalty rewards scheme which upset many of its customers.

Still, the list is a positive for those investors who believe branding does play some role in value creation leading ultimately to higher returns for shareholders.

I have no problems with this argument and it makes sense too given the age and size of each of these respective companies where brand/marketing managers have had many years to refine their promise to consumers.

However, it will be interesting to see how things play out in the years ahead and whether these brands will maintain their current positions:

• Telstra is predominantly a domestic company with limited growth prospects and competition is strong in the markets in which it competes. Whilst the brand is valuable, it will be interesting to see if branding (and overall value proposition) will be a strong enough tool to compete against the likes of TPG Telecom Ltd (ASX: TPM), Optus and Vodafone in the future
• Each of the big-four banks are considered rightly to be very safe institutions, especially given the Australian Prudential Regulation Authority's focus on increasing the banks' capital adequacy ratios, but there's perhaps not much growth in this sector. Additionally, each of the big-four banks (except for the NAB) rely heavily on selling mortgage finance which is a risk given the elevated levels of housing prices in Australia. Will the banks' brands suffer if competition increases, official interest rates are hiked, property prices fall and foreclosures rise? We'll wait and see
• Woolies and Coles are facing increasing competition from existing Australian competitors Aldi and Costco, but a big unknown for the prospects of these two brands is the wildcard that is Amazon's imminent entry into Australian retailing (interestingly, Amazon's brand is third on the list behind Google and Apple respectively)

Foolish takeaway

For the Australian companies referred to in this article at least, Brand Finance's annual ranking is more-or-less a validation of previous marketing and branding decisions made by the management of these companies going back decades.

I'm sure each would beg to differ, but these existing brands, although still highly valuable and well recognised, are being challenged by strong competitive forces (both from within Australian and overseas) in the markets in which they operate, so I wouldn't look at brands only when looking to buy a company's shares.

But there are other companies with strong brands which I believe have the potential for high returns, companies such as Cochlear Limited (ASX: COH), Class Ltd (ASX: CL1), Premier Investments Limited (ASX: PMV) and Webjet Limited (ASX: WEB).

Either way, stock selection is (or should be) an approach to investigating a company from a number of angles, the branding and unique-selling proposition of the company being only one.

You'll also need to consider the company's financial health, its prospects for continued growth and perhaps even an ability to continue paying increasing dividends over time.

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