Stocks to Buy 2014: Memorial Day weekend officially kicks off the summer holidays, which means a jump in beer sales begins now.
In 2013, beer and malt beverage sales reached more than $11 billion, just in the 15 weeks between Memorial Day and Labor Day. That made the libation one of the largest-selling categories of any food and beverage, according to Nielsen Senior Vice President Andrea Riberi. And this year will prove no different.
But some beer companies have more to offer than a fizzy, golden product. A few also offer excellent investment opportunities.
You see, it’s not just summer cookouts that keep beer company profits flowing. In 2013 alone the beer market in the United States was worth approximately $100 billion, according to Brewers Association. And more than 2,800 total breweries operated for some or all of 2013, the highest total since the 1870s.
Money Morning Chief Investment Strategist Keith Fitz-Gerald has two favorite beer stocks to buy now to pour extra profit into your portfolio.
The world’s largest brewer, AB InBev has operations in 24 countries and a workforce of 150,000 employees worldwide. It has a portfolio of more than 200 beer brands, including Budweiser, Corona, Stella Artois, Hoegaarden, Leffe, Beck’s, Michelob Ultra, and Modelo Especial.
“The conventional wisdom is that bigger is better, so when it comes to plunking down your hard-earned money on a great beer investment, InBev is the ticket if you’re into stability,” Fitz-Gerald said. “It controls five out of six of the world’s largest brands and has strong global recognition. Plus, with the war chest it has on hand, the company can simply outspend competitors in the relentless battle for drinking dollars.”
InBev is the result of a 2004 merger between Belgium’s Interbrew and Brazil’s AmBev. In 2008, it acquired Anheuser-Busch for $52 billion to form Anheuser-Busch InBev (AB InBev).
The St. Louis-based company took the top spot in the Brewers Association’s 2013 annual list of the top 50 overall brewing companies, compiled based on beer sales volume (MillerCoors LLC and Pabst Brewing Co. took the second and third spots). Bud Light was America’s top-selling brew in 2013, and it alone notched sales of nearly $6 billion.
And over recent months, AB InBev has proven it’s putting its cash toward further expansion.
On Dec. 5, AB InBev announced a capital investment of $10 million into its Williamsburg brewery, which serves several states along the East Coast and produces approximately 40 different ABInBev brands. The expenditure is part of the more than $39 million that’s been invested in the facility since 2011 and went to expanding packaging operations and other production needs.
And on Jan. 20, AB InBev repurchased South Korea’s Oriental Breweries for $5.8 billion (it had sold the brewery in 2009 to private equity firms). The move strengthened InBev’s position in the fast-growing Asia-Pacific region.
BUD stock is up 15.15% over the last 12 months and 3.5% year to date. Shares traded at $110.10 on Friday, with a 52-week range of $83.94 to $111.38. BUD has a price-to-earnings (P/E) ratio of 13.12, and a market cap of $176.86 billion.
For any investors who are looking for beer stocks to buy that are a bit more exciting than a stable industry leader, Fitz-Gerald has one for you, too…
“BUD stock is good for stability, but if you’re into growth, the smaller craft brewers are the way to go,” Fitz-Gerald said.
And he doesn’t think a billion-dollar top line by 2014 is out of the question for this next pick…
In 2013, growth in the craft brewing industry was up 18% by volume and 20% by retail dollars, according to Brewers Association numbers. While beer as an industry decreased at a compound annual growth rate (CAGR) of 0.3% from 2007 to 2012, the craft beer industry grew 10% annually, according to Beer Marketer’s Insights. It projects craft beer to represent nearly 15% of the beer industry by 2020 at current growth rates.
Growth is the attractive metric for investors in craft beer, but Fitz-Gerald notes that shares in this industry are tougher to buy because most are private.
But Boston Beer is one that’s loaded with potential.
“Boston Beer Company is the one to go with here,” Fitz-Gerald said. “I think a billion-dollar top line by 2015 isn’t out of the question.”
SAM landed a No. 82 spot on Forbes’ list of “The World’s Most Innovative Growth Companies 2014,” evaluated in a pool of best-performing companies under $10 billion in market cap. It also made Forbes’ “America’s Best Small Companies” list, at No. 13. Brewers Association puts Boston Beer Co. in its top spot for U.S. craft brewing companies and at No. 5 for the top 50 overall U.S. brewing companies, both determined by beer sales volume in 2013.
The Boston-headquartered company, founded in 1984, sells more than 50 beers under the Samuel Adams or the Sam Adams brand names. It also sells seven flavored malt beverages under the Twisted Tea brand and three hard cider beverages under the Angry Orchard brand.
SAM has an enterprise value of $3.04 billion as of June 2014, according to Forbes. In five years, SAM stock has risen a whopping 690.26%. Shares are up 45.84% over the last 12 months, but down 6.59% over last month. On Friday, SAM traded at $222.26 per share.
“The stock is rich as reflected in a P/E above 40, so pullbacks are the way to go. The story here is both one of craft beer but also hard cider and malt, both of which are enjoying huge upswings in popularity at the moment,” said Fitz-Gerald.
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