New Craft Beers are Sprouting Up Everywhere These Days. As a Result, These Beer Stocks are Thriving.
The best beers can be hard to find. The best beer stocks can be even harder to find. Here is a little guide on where to find them this year. But first, let me tell you about some of my favorite beers—and when to drink them.
Tough Matchup for Craft Brewers
Every year I play in an annual pond hockey tournament with a group of college friends on Lake Winnipesaukee in New Hampshire.
We have mixed results on the ice. But we always have a fridge full of New England’s best beer. And the boys from Idaho bring an assortment from their part of the country too. Most importantly, we are able to connect every year and share long tales and tasty suds.
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Up until two years ago our beer selection was mostly Vermont offerings since that’s where we all went to college. And they were mostly IPAs, specifically double IPAs (DIPAs).
But in the last two years there have been a lot more session and super session IPAs, lagers, pilsners and other varieties. As trends go, what we see happening is that the IPA boom has been winding down and consumers are enjoying 16-ounce cans of beer in the 4.8% to 6.5% alcohol range a little more. Easy to drink, and easier to get up the next morning.
Taking that thought process one step further, I think the implications for the craft brewing industry is that competition is still intense. There are a lot more brands now and there’s a ton of brand variety overlap. Distribution is a huge factor too – in some cases the rarer beers are still intensely sought after. But there’s something to be said for the easy-to-find beer that everyone enjoys, regardless of what state you’re in.
If I had to narrow down the list of the five most popular craft brewers that we enjoyed beers from this past winter, I’d say the two leaders for DIPAs and IPAs remain the Alchemist (Stowe, VT) and Trillium Brewing (Boston, MA).
For other offerings (including a few IPAs too), there were a lot of cans from Tree House Brewing (Charlton, MA), Nightshift (Everett, MA) and Hill Farmstead (Greensboro Bend, VT) leaving the fridge.
The most popular new offers (at least in my book) came from the expanded beer list at Lawson’s Finest Liquids (Waitsfield, VT), which now has a new Taproom in “The Valley.” If you can get your hands on their Scrag Mountain Pils or The Space In Between offerings this summer, you’ll be a happy camper (the latter is even available at some Whole Foods in Massachusetts).
In terms of investment potential, there are still a few ways to invest in the craft beer industry. But none of the above are publicly traded.
As in previous years, I’m inclined to say packaging is the surest bet as can volume is somewhat insulated from trends in flavors and brewers. Sure, there are trends in can shape and size, but for now this is a good thing (the 16-ounce can has been a huge seller).
There are also a few smaller brewers that are publicly traded and offer opportunities. But this is a fickle industry and investors in these companies should pay attention to the trends in the underlying business.
Here are a few options to consider in the back half of 2019.
The Best Beer Stocks to Buy Now
Best Beer Stock #1: Ball Corporation (BLL)
Ball Corp makes metal packaging products for the beverage, food and personal care industries. The company is based in Colorado, has a market cap of $23.7 billion and pays a 0.83% dividend. Back in 2016 it acquired Rexam, a U.K.-based competitor, and this combination of the world’s two largest beverage can makers is why the company’s revenue growth soared by 14% in 2016 and 20% in 2017.
While that acquisition closed three years ago the pitched benefits are just being enjoyed now. Part of that pitch was that Ball could achieve around $300 million in annual synergies, aggressively pay down debt, buy back shares, and hike its dividend. That’s all happened. With the stock having doubled since the acquisition closed and up nearly 60% year-to-date, it appears the acquisition was a good move.
In 2018 top-line growth was a modest 6%, coming in at $11.6 billion. EPS jumped a little more, by 8%, to hit $2.20. The stock is doing well now because analysts see potential for more leverage as beverage can growth continues (up 8% and 4% in the last two quarters, respectively). While revenue growth is expected to be in the single digits this year and next, EPS growth should jump 20% (to $2.64) in 2019 and 15% (to $3.04) in 2020.
Competition is fierce in this industry, but Ball is a market leader and with all the new beer (and other beverage) options out there the company has enjoyed growth in specialty cans, which retail for two to three times that of a standard 12-ounce can. That works out to around $0.06 for the 16-ounce cans that I love so much, versus $0.02 for the 12 ounce can.
Specialty cans are where the growth is (up 20% in Q1 2019). And they now make up almost a third of can volume in North America, and upwards of 40% to 50% in South America and Europe. Bottom line – if you’re looking for a real nuts and bolts way to invest in beer, long-term investors would be wise to pick up some shares of Ball Corporation. Earnings should be out around the first of August.
Best Beer Stock #2: Boston Beer (SAM)
If you’ve spent any time in the Northeast you likely know Boston Beer well. The company is a well-known brewer in Boston, MA, and has wide assortment of beers, flavored malt beverages, hard cider, hard teas and kombucha offerings under the Samuel Adams, Twisted Tea, Angry Orchard, Truly Spiked & Sparkling, Marathon Brewing, Tura and Wild Leaf Craft Hard Tea brands.
Also, as of July 3, Boston Beer has merged with Dogfish Head in a $300 million deal that brings a number of IPAs and session sour brands, as well as around $115 million in annual sales, under the Boston Beer umbrella.
Boston Beer, along with a number of other craft beers, has been challenged to find growth in beer alone, which has led it to expand into other offerings. In 2016 and 2017 revenue fell by 5%, but new initiatives spurred 16% revenue growth in 2018, when EPS also jumped, by 23%, to $7.46.
Analysts estimates will likely change after the first quarterly report with Dogfish Head in the mix, but as of now we’re looking for around 13% revenue growth in 2019 and 9% in 2020. Expected EPS growth of 16% (to $8.67) in 2019 and 14% (to $9.86) implies margin improvement, which, along with more optimism in the diversified growth outlook, is why the stock has just broken out to a new all-time high. Look for earnings to come out around the July 24.
Best Beer Stock #3: Craft Brewers Alliance (BREW)
Craft Brewers Alliance is a small cap craft brewing company that’s had mixed success over the years. The company owns a number of craft brew brands, including Redhook, Widmer Brothers, Kona Brewing, Long Hammer, Omission and Square Hard Cider.
Revenue growth averaged 26% from 2006 through 2014. But has stagnated over the last four years with revenue basically pegged at $210 million. EPS has improved, to $0.21 in 2018 from $0.12 in 2015. Analysts see revenue up 5% in 2019 and 9% in 2020, with EPS dipping to $0.16 this year then jumping 87% to $0.30 in 2020.
The stock has been strong in recent weeks but the trend over the last 12months is down, mostly because there’s nothing to get excited about. There’s also been a lawsuit (just settled for an estimated $4.7 million) due to a misleading marketing for the Kona brand, which consumers believed was made in Hawaii. In fact, only 12,000 barrels were produced in Hawaii, with the rest brewed in Oregon, Washington, Colorado and New Hampshire.
In short, Craft Brew Alliance’s beers might taste good out of the tap, can or bottle. But investors aren’t thrilled with the financial performance, growth outlook and “noise.”
The current strength is largely because of increasing pressure for Craft Brew Alliance to sell itself, with strategic partner and largest shareholder Anheuser-Bush InBev (BUD) the most tossed-about name. Management has also been out reassuring the market that the foundation of the company is strong, and it’s on the right track.
In short, this isn’t an easy company to understand right now. You need to dig in and decide for yourself if it’s a turnaround story, or a value trap.
Best Beer Stock #4: Waterloo Brewing (WBR.TO)
Waterloo Brewing is the second incarnation of Brick Brewing (former ticker symbol (BRB.TO)), having just completed the name change on June 12, 2019 in an effort to better align branding with its geographical origins. In the craft brewery world where brand identity is critical, this is a wise move in my opinion.
Waterloo has a market cap of $128 million and is the largest Canadian-owned craft brewery in Ontario. It owns the brands, Waterloo and Laker, as well as exclusive Canadian rights to Seagram Coolers, LandShark and Margaritaville.
In recent years it’s been streamlining operations by selling off two brewery facilities, including one in Waterloo in 2014 and another, its Formosa facility, in September 2017. This has saved hundreds of thousands in annual operating costs.
Revenue was up a modest 1% in fiscal 2019, but that’s a muddy number as it includes a new relationship with Waterloo’s biggest customer, TBS, which changed to a consignment relationship (from buy-sell) with all of its supplying brewers.
Excluding that impact, Waterloo’s revenue was up 7.8% in fiscal 2019. Management is bullish on Waterloo’s potential to produce THC- and CBD-infused beverages in the future. The company is profitable (EPS was $0.04 in 2019) and pays a dividend of 2.9%.
None of these stocks has made the cut for Cabot Small-Cap Confidential since, even though they’re interesting stories, the companies are not growing quickly enough for my subscribers.
To find out what small-cap stocks have made the cut for Cabot Small-Cap Confidential, grab a subscription today. We’ve been making money, with an average gain of over 100% right now, and are still finding overlooked and undervalued small caps that should vastly outperform for the rest of the year.
Tyler Laundon is chief analyst of Cabot Small-Cap Confidential. The circulation of Small-Cap Confidential is strictly limited because the undiscovered stocks with sky-high-potential that Tyler recommends are often low-priced and thinly traded. Don’t share these recommendations!Learn More
*This post has been updated from an original version, published in 2017.