Brew a Better Portfolio With These Stocks
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I'm not a booze guy, personally. But I've noticed that a lot of people enjoy a brew or a glass of wine every so often, and I like the idea of profiting off of other people's habits. I noticed that there are a few stocks that seemed promising when I filtered for a dividend, at least a 10% profit margin, and a P/E ratio under 20. So far, so good. Let's pop the keg and take a sample of these distilleries.
Strong Brands and Tight Fists
Anheuser-Busch (NYSE: BUD) is an example of what happens when a family-owned company with strong brands meets the corporate crunch of tight cost controls. While I have mixed feelings about the discharge of the Busch Entertainment group of theme parks, I have to admit that it's probably for the best that family-oriented businesses not be owned by a beer company. But I have absolutely no doubt that Budweiser, Bud Light, and Skol make an incredible trifecta that turns serious profits. I also enjoy that every time someone cracks open a Bud, a part of that nice 1.5% dividend flows to the shareholders.
Of course, I'm not that big on the "corporate" cost-cutting that has taken some of the shine off of Busch's employee appeal. The effective removal of salaried employee pensions and life insurance, for example, and the reduction of other employee benefits like cell phones and tuition reimbursement for more employees and administrative assistants for top tier management tend to make me wonder if Busch isn't going to end up only attracting middling employees. I like the company, but its prospects worry me a bit.
Diversity and Serious Growth Potential
I like Compania Cerveceria Unidas (NYSE: CCU) for a couple of reasons. For one thing, any company based in South America is sitting in a hotbed of growth opportunity. As populations get wealthier, more opportunities open up channels for sales growth on both the low and high ends. As one of my dad's friends once said, "In bad times people drink more, and in good times they drink better stuff." CCU owns brands in candy, pisco (grape brandy), wine, and beer. It's big in Argentina and headquartered in Chile (where it's even bigger). I also like how CCU has licensing and joint venture agreements with the likes of PepsiCo, Heineken, and Busch. I like the idea of a company that's poised to grow and works alongside more powerful companies -- it's kind of like the extra motivation of working out with guys who can bench twice what you can.
Integrity and Serious International Exposure
I never really thought much of Molson Coors Brewing Company (NYSE: TAP), but I now admit that my opinions were unfair. The company volunteered to audit its own emissions in 2008, resulting in a $1 million fine, and subsequently developed a more environmentally friendly way to cure the printing on its bottles. That one-time reduction in cash flow did a lot to buy credibility. But speaking of buying, I also like that Molson Coors is operated jointly in Canada and the US. While some people would consider that an exchange rate nightmare, I consider it a great hedge against two of the world's best economies. The US is a bigger risk taker and more prone to recessions, but Canada's stability comes at the cost of a smaller economy. I think working together like this and combining strengths is beautiful.
Numerous Ways to Do One Thing Well
I've heard that there are many ways to skin a cat. And while I don't advocate doing crazy things like cat-skinning, I do advocate a good cabernet sauvignon every so often (though I find it a bit dry). Vina Concha Y Toro (NYSE: VCO) has been making wines in Chile since the 1920s, and has branched out to wineries in Argentina and California. I like the idea of a company being in diverse areas because I hate the idea of one area's problems crippling an entire company. I also like how since the early part of the century Concha Y Toro has been looking to use high tech methods to expand and improve at every level. I like companies that are willing to drop the dogma and push forward into something better.
When I began my research I expected to find a bunch of mediocrity, but overall I've been pleasantly surprised. I'd say the strongest link in this group was CCU, but that's like saying which of the Olympic finalists was the best. These are all solid companies. If I had to nitpick and find something wrong, I'd point out that none of these companies has profit margins over 18.6% (Busch), and the lowest P/E ratio is 13.83 (Molson Coors), so there is only so much stability if anything goes wrong and they're not super-awesome deals. But they're still reasonable, and I'm fine with paying a little more for a great company.
pongun has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Compania Cervecerias Unidas S.A. (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!