Central European Distribution (CEDC): Great growth oppportunities

By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report

From Cabot Wealth Advisory, 6/26/08  Sign up for free Cabot Wealth Advisory e-newsletter

Central European Distribution (CEDC) is not a hot stock, but it’s a dependable stock, and it’s benefiting from the economic growth of Central Europe (and its neighbors) as well a well-managed program of acquisition. It’s possible that a paucity of restrictive laws where it operates are a good thing for its growth, too.

Here’s what Mike Cintolo wrote last September, when the stock appeared in Cabot Top Ten Report.

“Central European Distribution is the major distributor of alcoholic beverages in Poland, with an unblemished ten-year record of growth since it came public in 1998.  It’s the country’s main importer of Remy Martin, Jim Beam, Metaxa, Sauza Tequila, Grant’s, Corona, Foster’s and Guiness. But this year the company completed the acquisition of Poland’s largest distillery, Polmos Bialystock, and it’s this move into the high-margin production business that has lit a fire under the stock.

“Also attractive is the company’s move into Hungary last year, and its anticipated move into the Czech Republic and Russia. Here the big story is vodka; 75% of the company’s revenues come from selling vodka, and only Russia exceeds Poland in per capita consumption. Also, the company’s premium brand, Zubrowka, will soon be launched in the U.S.—Zubrowka means Bison Grass Vodka, and each bottle contains a blade of grass from the Bialowieza forest.  

“In sum, the future for Central European–which is helmed by a 42-year-old former Floridian, William Carey—is bright.”

Back when that was written, the stock was trading at 45. Yesterday it closed at 70. But I don’t believe the growth is over. Looking at the numbers, I see that Central European now boasts accelerating growth of both revenues (up 37% in the first quarter) and earnings (up 55%) as well as growing institutional sponsorship.

Looking deeper, I see that in May the company completed its acquisition of a 75% economic interest in Whitehall Group, a leading importer of spirits and wines in Russia. In the same month, it also signed a binding commitment for strategic investment in the Russia Alcohol Group, the leading producer of vodka in Russia.

With a market capitalization of less than $3 billion, Central European is a third the size of Brown Forman (BFB), a third the size of MolsonCoors (TAP) and one-seventh the size of Anheuser Busch (BUD).  

It’s less well known than all these, and has greater growth opportunities, and I think you can buy some here.

Editor’s Note: Central European Distribution is no longer followed by Cabot Top Ten Report, it doesn’t have the patience, and the stock got shaken out at the March market low with a profit of 26%. But you can find similar up-and-coming stocks in every issue of Cabot Top Ten Report—it’s your ticket to the hottest stocks in the market.

Tim LuttsTimothy Lutts

President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.