Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
October is one of the most scenic times of the year as leaves change their color while lending an entirely new dimension to already breathtaking mountain views. It is also a time of entertainment with the NFL season well underway and festivals like Oktoberfest, which generally begins in late September, in full swing. Indeed, October is a great month for scenic drives, outdoor entertainment, and one certain beverage -- beer. And given the persistently high unemployment coupled with the looming threat of yet another recession, beer stocks could just keep brewing returns given the strong domestic demand and affordable nature of the product.
Since 2009, Boston Beer (NYSE: SAM), the maker of craft brew Sam Adams, has grown its stock nearly threefold. It is trading at a somewhat high valuation at 27 times trailing earnings, which, according to The Wall Street Journal data, is nearly twice as high as trailing earnings of small, mid, and large-cap companies in the S&P Composite 1500 Index.
While it may seem expensive, Boston Beer investors have cause to celebrate. Industry shipments of beer have only just now turned the corner and are climbing up following a four-year down trend, according to the WSJ. Indeed, through August of this year beer shipments are up nearly two percent versus a decline of 1.5% for all of last year, according to the WSJ.
Fueling the increase in beer shipments are sales of "craft beers", which have been a trademark of Boston Beer in addition to smaller, niche brewers. Indeed, craft beer sales volumes increased 12% in the first two quarters of 2012, according to Brewers Association data cited in the WSJ.
Wine, beer, and spirits company Constellation Brands (NYSE: STZ) has soared a whopping 75% year to date amid extremely robust wine demand. Constellation is preparing to compete more fiercely in the beer market. It is positioned to benefit even more as it takes control of the Crown Imports joint venture it had with Grupo Modelo, a deal that will be accretive and which hands over control over the distribution of Corona Extra beer. Constellation's Mexican beer business is also growing amid strong demand from the Latin American region, according to the company's most recent quarterly results.
Since reporting its second quarter results on October 5th, shares soared in the immediate sessions but the stock has begun to pull back some. As pointed out by CNBC, the stock staged a similar rally in the immediate sessions following its previous quarterly results in late June. The stock eventually retreated three percent. Investors should watch the pullback and think about entering the stock then.
Another compelling beer stock at the moment is Molson Coors (NYSE: TAP). It is trading near its 52-week high, but the company also has a trailing P/E ratio under 15, making it more reasonably valued. And, not to be done by smaller, independent brewers Molson Coors is making a push into the craft beer market, according to the WSJ, where the market is getting more crowded. At the moment, the number of U.S. breweries is at its highest levels since the 1800's and the pipeline is filled with some 1,300 new breweries, based on Brewers Association data.
For its part, Molson Coors' U.S. venture -- MillerCoors -- is pushing its niche beer line, led by its Tenth and Blake beer company -- more specifically, Leinenkugel. Molson Coors is also extending other niche products such as its iced tea-flavored Coors Light, which hit the Canadian market last Spring.
October is almost half over and Oktoberfest is pretty much in the rear view mirror. But the future for beer stocks is appealing. The sector is more exciting than other consumer stocks that tend to do well in challenging economic times and yet it has the benefit of a historical track record on its side. No matter how investors opt to play it the beer sector is one of those groups that knows how to adapt not only to changing palates but also evolving economic conditions.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Boston Beer. Motley Fool newsletter services recommend Boston Beer and 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.If you have questions about this post or the Fool’s blog network, click here for information.