When it comes to food shopping, I'm generally a pretty thrifty person. I clip coupons, and I make a hobby out of sampling various generic or store-brand grocery products. I like to compare them to the premium name-brand products and see where I can save money without sacrificing quality or value.

Well, let me tell you that after doing this for a few years now, I can definitely say that a lot of generic products are just not as good as the name-brand stuff. Don't get me wrong, you can find some bargains out there if you look. A case in point is butter. Whether it comes in a white box with black letters or in a colorful box that says "Land O' Lakes" it tastes the same to me. But, butter aside, my general experience in grocery shopping, as well as in clothes shopping, car shopping, or even shopping for colleges, is that you usually get what you pay for.

You pay more for name-brands because name- brand products are usually better. I mean, ever try generic paper towels? For 69 cents a roll against $1.29 for the Brawny, you can't lose, right? Well, you can and do lose if you continuously have to grab three generic paper towels to clean up the spill that one Brawny would have cleaned. That's called false economy.

There's a lesson here in picking stocks also. You should expect to pay a little more for stocks of companies that sell products with a strong name-brand or where the company is the recognized leader in its industry. The trick is to figure out how much extra the name is worth. I haven't figured it out yet, but I've heard of at least one person who made a fortune buying only name-brand stocks.

Perhaps you read the Money Magazine article last year about a woman named Anne Scheiber who died with a $22-million portfolio that she had accrued on her very modest salary as an IRS auditor? Well, in case you didn't, her philosophy was to buy the stocks of top-shelf, name-brand companies and hold them for the long term. In her case, "long term" meant "until you die." Now, I recommend that you don't hold all your stocks quite that long, but then again, I don't have $22 million, either.

Among this Foolish woman's stock selections were icons of American industry like Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %>, Bristol-Myers Squibb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BMY)") else Response.Write("(NYSE: BMY)") end if %>, Rockwell International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %>, and Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %>, to name a few. She believed in paying a little extra for the best names, and in the end her strategy paid off handsomely, to the tune of an average annual total return of 17.5%! Alas, she died without spending any of her fortune.

Some name-brands are clearly worth paying a little more for, both in the grocery store and in the stock market, but how much is too much? For one possible answer, let's look at one of Anne Scheiber's picks, Coca-Cola. I love this company. Drink tons of the stuff. Until recently, I held the stock. But when the P/E ratio on KO began creeping above 30 or so, I thought it was time for a little re-evaluation.

Coke is a growth company, and as such, brand name aside, a fair P/E multiple to pay for a company growing earnings at 15-20% annually should be about 15-20, right? Well, how much more is the name worth? Well at its current price of about $59 per share and on trailing 12-month earnings of $1.40, the "efficient" market says that a fair P/E for Coke is about 42!! Go figure. I'm just as willing as Miss Scheiber to pay a slight premium for a top-notch company, but in my book, KO is in the stratosphere, brand name or no. I'm just waiting for the folks on Wall Street to figure this out too. When they do, I'll be jumping back in with both feet. Until then, I'll continue to drink lots of the real thing.

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