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Brewers Tapping Into Higher Prices

Posted: Aug 26, 2009 15:37 PM by Joey Fundora

Tickers in this Article: TAP, SAM, FMX, CCU

The brewery sector is a group I haven’t followed too closely over the years, despite an affinity for their end product. Maybe I should have been paying closer attention, because some of the beer stocks have been looking good, and could be headed higher. Many have been building solid bases over the past few months, and have begun to emerge from these consolidation areas. There are plenty of options in this group, despite the most famous beer stock's (Budweiser) disappearance courtesy of a buyout.

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Fomento Económico Mexicano, S.A.B de C.V (NYSE:FMX) is the producer of the Dos Equis brand of beers with the catchy and humorous commercials. FMX recently cleared a sideways consolidation and is in the process of testing the breakout area as support. With the initial leg up from March through June, now followed up by a consolidation and a breakout, the logical conclusion is that FMX is now in an intermediate uptrend and embarking on a new leg up. A break back into the prior base would hint at a failure, and signal that the lateral trading range still exists. (For related reading, check out Trading Trend Or Range?)

Source: StockCharts.com

Boston Beer Co. Inc. (NYSE:SAM) is the brewer responsible for the Sam Adams brand of beer. SAM has been among the strongest in the group recently, with a sharp rally on an increase in volume over the past month. This rally occurred after a lengthy consolidation that took place in a very tight range. Healthy consolidations are the fuel for sustained breakouts, and this looks like a great example. While SAM is currently extended, it appears likely to find support on pullbacks. The prior breakout area near $31 is an important level to watch in case of an extended pullback.

Source: StockCharts.com

Molson Coors Brewing Company (NYSE:TAP) is another brewer with a healthy looking chart. It has been consolidating the rally off the March lows for a few months, and is basing tightly just under an established resistance level. It hasn’t been able to clear resistance yet, but a move above the $48 level could signal a breakout and the beginning of a trend move higher.

Source: StockCharts.com

Compania Cervecerias Unidas S.A. (NYSE:CCU) is one brewer that doesn’t look poised for an immediate breakout. However, the stock's price action is still healthy overall. CCU cleared a base in May and rallied through the end of June. It has been trading sideways since then, consolidating the move higher. It is currently closer to the lower end of the immediate trading range, but is holding above a base on the longer term charts. If CCU can hold near this level, it’s possible that it will attempt another shot at testing the upper end of the range -and a breakout.

Source: StockCharts.com

Bottom Line
On a side note, it’s interesting that most of these companies are diversified beyond simply beer products, and also have exposure to foreign markets. This may help shield them from a consumer slowdown domestically. While this is a possible fundamental reason for continued strength, as a technical trader, I will be watching the charts for confirmation of a trend in either direction. Each of the stocks above could be signaling a move for the sector as a whole.

Do you think these stocks can continue their strength, or will the weak economy eventually take its toll on them? Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!.

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.

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