Three beer stocks are already in a bear market: Anheuser-Busch InBev (BUD, Financial), Ambev (ABEV, Financial) and Molson Coors Brewing Co. (TAP, Financial). Seeing the extraordinary run of Boston Beer (SAM, Financial) over the last 15 months, investors have to be wondering how long these stocks will stay at current prices.
Anheuser-Busch
Anheuser-Busch is the largest brewer in the world (by far) with annual sales of $56 billion and a market capitalization over $172 billion. Brands include the world’s number one German beer Beck’s, top Belgium beer Stella Artois, the world’s favorite light beer Bud Light and, of course, Budweiser. Results at the start of 2018 where short of analyst targets due to lower volumes and higher selling, general and administrative expenses. Now that the World Cup is over, however, the company likely booked very positive numbers across its product lines. In the short term, the company is looking to earn $5.30 a share in 2018, putting its forward price-earnings ratio below 20 times, plus it pays a solid 4.8% dividend. The company is also well positioned in emerging markets, most notably in Africa with multiple new facilities. The stock has bounced back off the lows and still remains a solid buy.
Ambev
Ambev is the second-largest brewer in the world with north of $13 billion in annual sales and a market capitalization of $78.5 billion. The Brazilian company is owned by Anheuser-Busch, which means that it’s essentially the South American distributor for the company, with its own local brands mixed in. In fact, the company has leading market share in most of its territories: 68% in Brazil and 81% in Argentina. With the stock off 25% year to date, there’s no time like the present to follow the guru investors into this one. Ken Fisher (Trades, Portfolio) owns over 30 million shares and Jim Simons (Trades, Portfolio) has just over 2 million shares.
Molson Coors
Molson Coors is the largest brewer still owned and operated here in the United States. It has annual sales close to $11 billion and a market capitalization of $14.6 billion. It may look like the most undervalued in terms of price multiples, but that has a lot to do with the brand itself. The Coors brand doesn’t have the same power or run rate as Budweiser or Corona. The stock is off 21% year to date as the “banquet beer” has struggled with cost increases in raw materials. Regardless, the company is set to earn over $5 a share in the next year. It’s also exploring the cannabis market, especially in Canada, and could launch a cannabis-infused drink in the near future. I like this step considering the marijuana industry (if legalized) will be as big or bigger than the alcohol industry. For now, investors can expect the board to raise dividends and to repurchase stock to boost shareholder value.
In general, the brewer segment of the beverage industry should continue to grow as a whole and it’s a good time for investors to get in. Alcohol sales will not decline. Even with the rise of craft breweries, the big names are still the best sellers. It’s also an industry that doesn’t have price pressures as the top companies can steadily increase prices to meet inflation.
Disclosure: I am not long or short any stocks mentioned in this article.
