Alcohol in the News: The Fight for Market Share

Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

To misquote Clint Eastwood, “A company's GOT to know its limitations.” Limits apply in a couple of ways. People need to know the limits of their abilities and they also need to know their limits when drinking alcoholic beverages.

That brings me to the news about Anheuser-Busch InBev (NYSE: BUD) and Grupo Modelo. Now, I'm not a drinking man, at least not since college back in the dark ages, but I've been following this for years. Already with an enormous market share, AB InBev decided to get acquisitional with the largest brewer in Mexico, Grupo Modelo. Modelo isn't listed on an American Exchange so it can be a headache to track. But what was important is that an enormous market-dominant firm, InBev, was planning to buy another market-dominant firm. Under the Bush administration, when this was announced, everything seemed fine. Today, the Obama administration said it wasn't and announced that it would file suit to block the merger.

So what does the blocking of the #1 buying the #3 have on stocks? Well, nothing good for either, I'll tell you that. Let's take a look at some alcohol stocks to liven up the day.

Anheuser-Busch InBev

At 10:22AM the day the government announced its intent to block the merger, BUD was sitting at $96.68. By 10:26 it was at $88.39 and would bottom out at $86.78 before closing at $88.60. That's a one-day drop of 5.88%. Ouch. It's yet to be seen whether the company will fight to maintain the merger or not. Still, even with that drop BUD is a good play. It's hard to bet against beer in the United States Over the last year the stock has grown from $62.74 to a recent 52-week high of $94.49. Even factoring in today's loss that still leaves it up 41% for the year. I don't believe for a second that's all just a factor of the coming merger. There's real value in BUD, even without Corona in the stable. This is still a solid buy for those wanting long-term value.

Grupo Modelo (NASDAQOTH: GPMCF)

And you think BUD had a bad day. Modelo tanked to the tune of almost 13% before recovering and ending only down 6.33% for the day. The firm has been put in the difficult position of trying to figure out how to move ahead when it doesn't know if it's going to exist in a year or two. Now BUD already owned a non-controlling 50% of Modelo so it's not like they're entirely on their own. But the uncertainty has to be bad on the morale.

Diageo (NYSE: DEO)

A British firm, Diageo is the world's largest producer of hard alcoholic beverages and also a large player in beer and wine. The company makes Smirnoff, Johnnie Walker and Baileys as well as other brands that seem to do well enough. The company has built or purchased a strong presence in the developing world, especially Africa and India and seems to be trying to build new markets for its products. I approve. The firm's listing on the NYSE is secondary to its listing on the FTSE in London but it could still be worth a buy as money that was expecting an easy time in BUD suddenly chasing another home. It also offers a 2.33% dividend yield. That's better than BUD's 1.76%.

Molson Coors Brewing (NYSE: TAP)

I suppose it shouldn't come as a surprise that TAP started higher, dropped and recovered on the day of the big InBev announcement. Still, Molson is a smaller firm compared to some of the others listed here. But they shouldn't be ignored. There is a lot of consolidation going on in the beer and spirits industry. TAP has made its fair share of acquisitions over the last few years. The stock has been up and down over the last year but it's up about 15% since June so it's on the right trajectory. It's dividend sits at 2.83%. I like it, maybe not as much as Diageo, but it's good.

Alcohol stocks are classic consumer investments. In hard times people will trend towards the cheapest beers and wines but when things get even a little better the firms that deliver a slightly better product start getting stronger and stronger. That's where we are now, with an economy moving in the right direction (despite yesterday's news). So it might be the time to start looking for some better beers and move away from the cheap stuff.

Good luck!

Follow Nate on Twitter: @natewooley

More columns by Nate Wooley:


Nate Wooley has no position in any stocks mentioned. The Motley Fool recommends Diageo plc (ADR) 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus