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Charles Sizemore
Charles Sizemore
Articles (507)  | Author's Website |

Beer Stocks: Crack One Open

April 12, 2012 | About:

Americans hitting the bar scene this weekend will have their choice of two basic beer options. They can order a bottle of a mass-market brand like Budweiser or Miller Lite. Or, if they style themselves as beer snobs, they might enjoy an import or a good microbrew. (As a native Texan, I find myself partial to Shiner Bock, though it is debatable whether Shiner still qualifies as a “microbrew” given its popularity in the state.)

Beer investors also have the same basic options. Suds stocks fall into one of two categories:

  1. Megabrews with world-dominating brands — companies like Anheuser-Busch InBev (NYSE:BUD), Molson Coors Brewing Company (NYSE:TAP) and SABMiller (SBMRY).
  2. Smaller companies that produce mostly craft beers, such as the Boston Beer Company (NYSE:SAM), the maker of the popular Sam Adams,and Craft Brew Alliance (NASDAQ:BREW), which makes smaller brands Kona and Red Hook.
Either option can make a fine investment choice, but you should understand that the rationales for buying are very different.

BUD, TAP and SBMRY essential operate a megabrand beer cartel. Their businesses are safe and relatively stable, though not particularly exciting. They also tend to be fairly recession-resistant. If anything, consumers often trade down from more expensive craft beers to cheaper mass-market beers when times are hard. For investors just looking for consistent returns, this kind of consistency is attractive.

SAM and BREW, being smaller and nimbler, are better growth stories. SAM in particular has enjoyed fantastic earnings growth in recent years, and its niche placement as a seller of premium beers allows it to generate higher returns on equity.

Both SAM and BREW also benefit from demographic shifts that have seen the gentrification of the beer market. True beer aficionados won’t be caught dead holding a Bud Light bottle, though a Sam Adams will work just fine.

One thing nearly all of the brewers seem to have in common, however, is lofty stock prices.

CompanyTickerTrailing P/E
Anheuser Busch InBevBUD19.3
Molson CoorsTAP11.2
Boston Beer CompanySAM21.2
Craft Brew AllianceBREW13.2

Anheuser-Busch InBev, SABMiller and Boston Beer all trade at valuations far higher than the broader S&P 500, and Craft Brew’s forward P/E is more than 35.

Of the entire lot, Molson Coors would appear to be the only one trading at an attractive price. The stock sells for just 11 times earnings and pays 3.1% in dividends. Not bad, given that the 10-year Treasury just slipped under 2% again.

Those dividends also happen to be growing at a decent clip. Last year’s TAP payout rose by 14%, and this was on top of the 16% rise the year before. And with the dividend payout ratio at just 34% of earnings, there is plenty of room for additional hikes.

Molson Coors also is conservatively financed and trades below its book value. There is not much here for an investor to complain about.

But while I like Coors’ stock, I won’t be drinking a Coors Lite this evening. I’m afraid Shiner Bock will always be my favorite.

Alas, I will not be buying Shiner Bock stock, however, because it is not a publicly traded company. This is a real shame. I’ve spent enough money on the company’s products over the years; I might as well benefit financially as a shareholder.

About the author:

Charles Sizemore
Charles Lewis Sizemore, CFA is the chief investment officer of Sizemore Capital Management. Please contact our offices today for a portfolio consultation.

Mr. Sizemore has been a repeat guest on Fox Business News, quoted in Barron’s Magazine and the Wall Street Journal, and published in many respected financial websites, including MarketWatch, TheStreet.com, InvestorPlace, MSN Money, Seeking Alpha, Stocks, Futures and Options Magazine, and The Daily Reckoning.

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