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Ask The Fool

The biggest brands

Q: What are the world’s biggest brands?

A: Forbes magazine recently published a list of the world’s most valuable brands. Here are 2018’s top 10, along with the value of each brand: 1) Apple, $183 billion (crossed $1 trillion on Friday); 2) Google, $132 billion; 3) Microsoft, $105 billion; 4) Facebook, $95 billion; 5) Amazon, $71 billion; 6) Coca-Cola, $57 billion; 7) Samsung, $48 billion; 8) Disney, $48 billion; 9) Toyota, $45 billion; 10) AT&T, $42 billion.

It’s interesting to observe how the list changes over time. A mere 15 years ago, Facebook didn’t exist, and Amazon started selling items other than books only in 1998. In 2010, Forbes’ ranking of the most valuable brands included names such as IBM, General Electric, McDonald’s, Intel and Nokia.

Q: When a company goes public via an initial public offering (IPO), do the original owners no longer own it?

A: When a company debuts on the open market with an IPO, usually only a part of it is sold to new investors.

Here’s a simplified example: The owners of Porcine Aviation (ticker: PGFLY) have determined, with the help of investment banks, that the company is worth $100 million. They decide to sell 30 percent of it to the public via an IPO to raise money to help it grow faster. They decide that they’ll have 10 million shares initially priced at $10, for a total value of $100 million. So 3 million shares will be sold to the public, with the original owners retaining ownership of 70 percent of the company, or 7 million shares. The IPO will generate about $30 million (3 million shares times $10) — less the investment bank’s fee, which is often about 7 percent.

MY DUMBEST INVESTMENT

Pet dumb

Dear Fool: My dumbest investment involved the pet warehouse chain PetSmart. I owned its stock when it was trading for about $12 per share, but about a year later, it had dropped to $10 per share. I sold all of it that I owned. Boy, was I sorry when it was acquired for $8.7 billion!

The Fool responds: Hindsight is 20/20. It’s easy to kick ourselves for moves that were so clearly wrongheaded now that we know how things unfolded. PetSmart was a pioneer in the pet-retail business, starting in 1980.

It ended up being bought by private equity firm BC Partners and taken private — meaning that investors can no longer buy and sell shares of it on the open market.

When a company you own stock in gets bought out by a private equity company, it’s often done at a premium price, giving investors an immediate boost in their shares’ value. But the story ends there, as they’re essentially cashed out. No matter how much more the company grows, investors no longer own part of it.

PetSmart is still around, and is still the largest pet specialty retailer, with more than 1,600 locations. Last year it bought online pet retailer Chewy.com for more than $3 billion, taking on a lot of debt to do so.

Things are getting more complicated, though, as this year it’s spinning off part of Chewy.com to BC Partners.

THE MOTLEY FOOL TAKE

A super market?

Kroger (NYSE: KR) stock has been in a slump for much of the past few years, but it’s finally showing some signs of life, partly due to a groundbreaking deal with British online grocer Ocado to address its online order and delivery deficiencies. Kroger needed to show a strong quarter to change its narrative, and it did just that with its recent first-quarter earnings report.

Kroger beat analyst estimates on both the top and bottom lines, with revenue up 3.4 percent to $37.5 billion, and management suggested that upcoming growth would exceed expectations, too.

Naysayers think that the Amazon acquisition of Whole Foods will eventually disrupt the grocery industry, as Amazon has disrupted the business of many other brick-and-mortar retailers. That argument may be wrong, though, or at least premature. For starters, while Amazon has lowered prices at Whole Foods somewhat, they’re not that low.

Meanwhile, groceries — particularly perishable items — are different from other goods. While online shopping and delivery may become a larger portion of grocery sales, most shoppers may continue to shop through traditional means. With digital shoppers likely seeking grocers with a local presence, Kroger has an edge with its nearly 2,800 stores.

The grocery industry is a tough one with slim margins, but Kroger shares seem attractive at recent levels, and they offer a dividend that recently yielded 2 percent, too.