The Best of Kass
Among his posts this past week, Kass explained what Super Bowl ad spending means for stocks and reviewed the past week's economic indicators.
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Stock Market Super Bowl Indicator
Originally published on Saturday, Feb. 2 at 9:00 a.m. EST.
- The heavier the Super Bowl advertising by a company, the more likely its stock will underperform.
On Sunday, one of the grand sporting events of the year will take place: the Super Bowl.
Starting with Super Bowl XXXIV in January 2000, I created the Stock Market Super Bowl Indicator. The indicator, as Alan Abelson noted in Barron's:
... is a contrary indicator, kind of like the cover of Time. Its critical components are the commercials carried on television coverage of the event and the identity of the companies doing the advertising. Its virtue is not as a forecaster for the market as a whole but for individual sectors of the market.
My indicator dictates that the more intense the Super Bowl TV advertising by a group of companies, particularly in a specific industry, the more likely the stocks of those companies will perform poorly in the year ahead.
Total ad spending has decreased by approximately $50 million compared to 2012, with auto manufacturers cutting their total ad spending in half, from $136.5 million in 2012 to an estimated $60.8 million in 2013. This could be a result of continuing concerns about a weak European market or a more cautious attitude with regard to domestic automobile sales relating to the fiscal drag of higher personal tax rates.
General Motors ( GM) via Chevrolet was the highest spender on advertising during the Super Bowl in 2012, and subsequently GM shares saw a dramatic decrease in their share price by July, down to around $20 from a February high of $27. GM shares recovered as the year progressed, closing out 2012 slightly above $28. The car manufacturing industry comes in second place for 2013, with nine brands buying ad time for an estimated total of $60.8 million.
The competition between food and autos runs even deeper when it comes to the halftime show sponsorship. Since Super Bowl XLII in 2008, Bridgestone has been the sponsor.
PepsiCo ( PEP) has taken over sponsorship duties, however, to promote the Beyonce spectacle this year. (No word on whether lip-synching will be included in this event, too.)
A total of 36 brands have purchased air time so far (as of Jan. 29) for the Super Bowl; Food & Beverage has the majority with 10. Anheuser-Busch InBev ( BUD) has the lion's share of the time, buying four and half minutes of air time; with a rumored average cost of $3.8 million per 30-seconds, the estimated cost of providing lots of time looking at Clydesdales and beer is estimated to be $34.2 million. In addition to the dramatic increase in advertising, the company had the Department of Justice block the takeover attempt of Grupo Modelo this week. Perhaps their beer is becoming skunked? Keep an eye on PepsiCo as well; they are on the ad list twice with soda and Doritos as well sponsoring the halftime show.