The term liquid gold is often an endearing term for water in the investment world, however recently the water stocks have been floundering as a new liquid gold has been brewing - beer!
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The brewed alcoholic beverage, better known as beer, has been a summer favorite around the world for years and this summer the beer stocks are as hot as the weather. With the overall stock market finding it difficult to put together a sustainable rally a number of beer stocks are hitting new highs.
For the last few years there has been a shift away from large domestic beer brands to the craft beers and spirits. Think about how many different vodka flavors are now available. I believe the trend is about to shift once again as drinkers move back to the core of alcoholic beverages due to tighter spending habits and the natural cycle of beverage consumption.
The Sudsy Players
Companhia de Bebidas das Americas (NYSE:ABV), known by most as AmBev, is Brazil's largest brewer and beverage company. It owns the country's three largest beer labels: Brahma, Skol and Antarctica. With Brazil ranking as the third-largest beer market in the world, this makes ABV a major player in the world brewing business. Analysts are looking for earnings of $5.89 in 2010 and $7.09 in 2011, putting the 2011 estimated P/E ratio at 15.3 - a very attractive valuation even though the stock hit an all-time high last week.
Anheuser-Busch InBev (NYSE:BUD) is the majority owner of ABV and one of the largest brewers in the world after InBev merged with Anheuser-Busch and moved the headquarters to InBev's home country of Belgium. Their portfolio consists of over 200 brands of beer that include Budweiser, Stella Artois, Michelob, Becks and one of my European favorites, Jupiler. Based on 2010 earnings estimates from First Call, BUD is trading with a P/E ratio of 17.9. Earnings in 2011 are expected to come in at $3.70/share, a 21% increase from 2010, dropping the P/E to 14.8. BUD is a way to play the global beer market versus ABV, which is focused on Brazil.
Another brewer that was formed through a merger is Molson Coors Brewing Company (NYSE:TAP). The stock has not had as much success as the first two in recent months, but did breakout to a new multi-month high in mid-July. The company is best known for its Coors Light and Molson brands, but it also brews and distributes other products under licensing agreements. The P/E ratio is even more attractive for TAP in 2011, 12.4 times, however the growth is not as impressive and therefore makes it more of a value play at best.
Going back to South America brings us to Compania Cervecerias Unidas (NYSE:CCU), a Chile-based beverage company that sells beers and other drinks mainly in Chile and Argentina. The stock hit a new all-time high last week, but the fundamentals are not backing it to make it a strong buy recommendation. Earnings will fall in 2010 from 2009 and are only expected to increase by 11% in 2011 according to First Call estimates. I love investing in Chile, but CCU is not my favorite pick.
Finally a US-based brewer, Boston Beer Company (NYSE:SAM), best known for its Samuel Adams brand of craft beers. The action in the stock has been strong as it sits just below the June 2010 all-time high and could breakthrough in the coming weeks. The one issue is the high valuation compared to its larger competitors; SAM has a P/E ratio of 22.5 based on 2011 earnings, much higher than its peers. The one factor in SAM's favor is the fact they concentrate on craft beers that could continue to steal away market share from the larger brands.
Choosing a Beer
If I were basing my beer stock picking on which beer brand I enjoy the most the winner would be BUD because it has over 200 choices. If the choice was based on which beer company would make me the most money the winner would be ABV because of their concentration on the Brazilian consumer. (For more information on beer, refer to Beer Nation.)
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