Last June, I wrote about the world of drinking stocks.
Stocks of beer companies (brewers)
Stocks of wine companies (vintners)
Stocks of spirits companies (distillers)
And above all, stocks of the conglomerates that have grown through acquisition and now own numerous global and local brands.
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Today, I provide an update on the group, including one of the best pure beer stocks to invest in, along with another recommendation. But first:
Why Budweiser’s (BUD) New Name is Brilliant
Last week Anheuser-Busch Inbev (BUD), the maker of Budweiser beer, announced that beginning May 23, and lasting through Election Day, Budweiser beer will be rebranded as America.
Some people have criticized this move, saying it’s crazy to ditch one of the most iconic brand names in the country.
And others have noted that Anheuser-Busch Inbev is no longer an American company. (Since the big 2008 merger, the company has been headquartered in Belgium and Brazil.)
But I think management at Anheuser-Busch Inbev is super-smart!
I think they took the pulse of the country, took note of the nationalistic fervor that’s blossomed in the climate of the current presidential campaign, and decided they could tap into that.
And I think you’ll see more of this as other makers of consumer goods tap into the same strain of populist, patriotic sentiment in an attempt to connect with consumers. Imagine a Toyota Eagle or a Sony Liberty.
In any case, this summer, if you want to signal that you’re fed up with politicians but you still love your country, all you need do is pop the top of a cold can of America.
The Best Drinking Stocks
There aren’t many adult beverage stocks to invest in. Eliminating stocks with very low trading volume (typically because the majority of trading is outside the U.S.) and stocks with prices below 10 (risk is higher down there) leaves just eight.
King of the hill is Anheuser-Busch, which sold $43 billion of beer last year, 36% of it in the U.S.
In addition to Budweiser (which is now the fourth-best selling beer in the U.S, after Bud Light, Coors Light and Miller Light), the firm’s brands include Stella Artois, Beck’s, Corona, Leffe, Hoegaarden, Skol, Bass, Blue Point, Brahma, Goose Island, Labatt, Lowenbrau, Michelob, Modelo, O’Doul’s, Presidente, Rolling Rock and Shock Top.
It’s not the best beer stock to invest in. Revenues at the company fell 7% last year, while earnings shrank 4%, but the stock is holding up surprisingly well. The stock does pay a 2.5% dividend, but the P/E ratio of 30 seems high to me.
Below BUD by market capitalization are the other multinationals:
Ambev (ABEV) saw revenues shrink 18% last year and the stock trades under $6 a share, making it too risky (volatile). For that reason, I won’t touch it.
Diageo (DEO) is mainly a spirits company, with a little beer on the side. Brands include Tanqueray, Gordon’s, Booth’s, Captain Morgan, Don Julio, Smirnoff, Ketel One, Johnnie Walker, Crown Royal, Bulleit, Seagram’s, George Dickel, Talisker, Lagavulin, Oban, J&B, Bell’s, Bailey’s and Guinness. The firm saw revenues fall 3% last year, while earnings grew 8%. The dividend of 3.1% may be attractive but the stock is too quiet to pique my interest.
Constellation Brands (STZ) is the world’s largest maker of wines (Mondavi, Clos du Bois, Ravenswood, Manischewitz), and it also sells beer (Modelo, Pacifico and Victoria) and spirits (Svedka, Black Velvet and Paul Masson). Constellation gets 91% of its revenues from the U.S. and 9% from Canada. It grew revenues 9% last year, and earnings 22% and pays a dividend of 1.0%. The stock has been in a strong uptrend for years and hit new highs last week. For growth-oriented investors who want a piece of the industry, this is the stock to focus on.
Brown Forman (BFB) gets 95% of its revenues from spirits and 5% from wine. Brands include Jack Daniel’s, Woodford Reserve, Old Forester, Early Times, Canadian Mist, Herradura, Finlandia, Chambord, Korbel and Sonoma-Cutrer. Revenues grew 4% last year, while earnings grew 5%. The stock is quiet and the P/E ratio of 30 seems high.
Molson Coors Brewing (TAP) is one of the best pure beer stocks to invest in—it’s all beer, all the time. In addition to the two brands in its name, the company sells Carling, Keystone, Rickard’s, Killian’s, Blue Moon, Cobra, Creemore Springs, Staropramen, Sharp’s and more. Interestingly, the U.S. accounts for only 3% of revenues. Canada accounts for 40%, the U.K 34% and other foreign countries (especially Eastern Europe) 23%. Revenues fell 14% last year, while earnings shrank 9%, but projections for 2017 and beyond look good. The stock pays a dividend of 1.6% and the stock is in a long-term uptrend, though not as strong as STZ. It’s worth a look.
Compania Cervecerias (CCU) – Headquartered in Chile, and diversifying slightly beyond beer into non-alcoholic drinks, the company saw revenues flat last year, while earnings fell 12%. The dividend is 1.3%, and the stock is lackluster.
Lastly, getting out of the big multinationals, we have our local contender, the biggest of the craft brewers:
Boston Beer (SAM) – In addition to the original Sam Adams, the company’s brands include Angry Orchard cider and Twisted Tea. The company grew revenues 6% last year and grew earnings 8%, but the stock’s chart looks terrible. Also, there’s no dividend.
To a large extent, all these companies are influenced by factors beyond their control, including the strength of the dollar and the shift away from beer toward spirits. None of them get my blood flowing, and none of them have been recommended by Cabot analysts this year. Still, if you’re interested, feel free to investigate STZ and TAP.
For what it’s worth, my real loves in the beer market lean toward the Belgian style and are all made by smaller private brewers that haven’t yet been acquired by the big boys. These are Allagash, Chimay, Duvel (which owns Boulevard, La Chouffe and Ommegang) and Southern Tier.
This Drinking Stock is Non-Alcoholic
Getting to my main recommendation, I do have a drinking stock, but it’s non-alcoholic.
Monster Beverage (MNST) was previously known as Hansen Natural, and was a great growth stock from 2008 to 2012. But then it changed its name to Monster—in recognition of its best-selling energy drinks—and investors rewarded it with a nasty 50% “correction.”
The stock wasn’t done though; it got back on track. And investors who had held the stock all the way from 2008 to the middle of 2015 notched a gain of roughly 1,400%!
At which point management announced a huge deal with Coca-Cola, which gave Monster Coke’s energy drink portfolio, gave Coke Monster’s non-energy drink portfolio, gave Coke 17% ownership of Monster, and (most importantly) gave Monster access to Coke’s awesome distribution network!
And what did the stock do on that news? It soared!
MNST rose 30% in a single day on more than 10 times its average volume. And it kept chugging higher from there, rallying another 50% over the next six months. This, by the way, provides a good lesson on why super-powerful moves (like extreme earnings gaps) can often provide good buying opportunities—it’s a sign of a sudden change in perception, and if the news is bullish enough, it often results in months worth of follow-on buying.
However, MNST hasn’t done much of anything since that move concluded back in February 2015, stuck in a trading range between 120 and 150.
But the stock had a very impressive reaction to its latest earning report. Add to that the fact that the energy drink market is still growing (as opposed to the mature alcoholic beverage market), and I think the odds are good that MNST is shaping up for another big run.
In fact, the stock just earned a spot on Mike Cintolo’s Watch List in Cabot Growth Investor. Here’s a piece of what Mike wrote:
“MNST traded sideways from February 2015 through April 2016, but it caught a strong updraft after its late-April earnings report, gapping up from 128 to 144 in one day and sailing to 153 in the days following. Sales growth hasn’t been huge—just 9% in Q1—but investors are finding a lot of potential in the story and the steady improvement in fundamentals (including strong earnings estimates) and the $2 billion share buyback announced during the earnings call. This story could have legs.”
So, you could just buy MNST here and take your chances going it alone. But a wiser course is to sign up for Mike’s regular weekly updates, so you’ll know exactly when to buy, and when to sell.
For details on how you can become one of Mike’s loyal (and increasingly wealthy) readers, click here.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More