Cheap Beer Stocks For Thanksgiving
Adam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I love the Food Network. I’m not sure exactly what it is that makes it so addictive, but every time I decide to watch TV, the Food Network is one of the first channels I check out. Yesterday, I found it was showing a live special for Thanksgiving week starring all my favorite celebrity chefs. The topic of the particular segment I happened to catch was wine pairings for Thanksgiving. I was surprised when one of the chefs recommended cheap beer and everybody there agreed that it’s a good choice.
After thinking about it, I agreed. There’s nothing more American in my mind than cheap beer. The United States is the second biggest consumer of beer after China and sports over 2,000 breweries.
The top selling domestic beer brands are flush with cheap beer.
Source: SymphonyIRI Group via Huffington Post
Notice any patterns? The U.S. market is dominated by three companies: Anheuser-Busch InBev (NYSE: BUD), Molson Coors (NYSE: TAP), and SABMiller (NASDAQOTH: SBMRY). While all of these companies produce delicious, Food Network approved, cheap beer, are their stock prices equally cheap?
AB InBev is the world’s largest brewer, with nearly 25% of global market share and nearly half of the U.S. market. In the last year, the company’s share price has climbed about 50%. It’s price currently sits about 6% below its 52-week high at the time of this writing. Yet, even with the huge increase in price over the last year, this still looks cheap to me.
Currently trading at a forward P/E of 17.1, it’s about in line with the industry average. Where AB makes up for it is in its great growth potential. The company continues to grab market share through acquisitions, locking out competitors, and dominating the global market. This leads analysts to project a five-year growth estimate of 12.68%, resulting in a PEG of 1.43.
The company’s 1.6% dividend looks secure at a payout ratio of 31%. Free cash flow continues to grow year after year so the company can return that money to stock holders through a raise in dividend or continued acquisitions to take further control of the market.
In the last year, investors have seen Coors’ share price trade back and forth between $38 and $46 per share. Currently trading in the bottom half of that range, Molson Coors looks relatively cheap as well.
While the company has struggled lately to produce attractive return on equity (just 6.79% TTM), it sports quite an attractive valuation level, trading at just 10.1 times forward earnings. The company also has had great revenue growth of 12.1% for the last 12 months and 25.7% year-over-year in its most recent quarter. Excluding costs from an acquisition in the second quarter of this year, the company is growing its earnings per share at a respectable 4.5%.
Molson Coors pays a very attractive 3.2% dividend. With a 42% payout ratio, it appears very secure, especially when coupled with Coors’ good cash flow from operations, which has nearly outperformed last year’s mark of $868.1 million with $840 million in the first three quarters of 2012.
Shares of SABMiller have increased nearly 27% in the last 12 months. However, after handily beating the market for the first nine months of that period, shares have lagged in the last three months. Currently trading about 8% below the company’s 52-week high. However, even with the slow down in the growth of share price, I don’t think SABMiller is trading very cheaply.
The company’s shares trade for a forward P/E ratio of 16.2. This is slightly below where AB InBev is trading. However, where AB is growing at a fantastic rate, Miller is only expected to grow in the mid to high single digits. The resulting PEG is 2.07.
The company pays an irregular dividend paying out $0.87 per share in the last year. That number represents a yield of about 2%. At a payout ratio of 33% the dividend is well-covered. However, I believe AB InBev gives you a similar, more stable, dividend at a similar price.
Filling Your Mug
I’m partial to companies with better PEG ratios. These companies’ shares are more likely to grow in price. Using this standard alone, Anheuser-Busch InBev is the best choice for investors. However, I also think Molson Coors provides great value, especially to investors seeking higher dividends. Coors is by far the cheapest of these beer companies in terms of P/E ratio. It should provide investors with stable dividend growth with less downside risk.
adamlevy has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Molson Coors Brewing Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!