Keep Cool This Summer With These Beer Stocks

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

As the Fourth of July nears, it’s likely many Americans will come face-to-face with many of their favorite adult beverages at a social gathering with family or friends. Some of the best stocks to own offer products that can be found in millions of homes across the country. Beer is one of those products, which consumers keep buying no matter the prevailing economy.

Beer stocks, just like the temperature, have kept on rising throughout the summer. As a result, investors should consider adding these highly profitable beer companies to their portfolio.

An industry in consolidation

The beer industry, particularly in the United States, is a saturated market. Beer sales in the U.S. declined for three years in a row before finally increasing 1% in 2012. Much of the reason for the rise in beer shipments last year was due to craft beers, which are smaller industry players.

Of course, the giant in the industry continues to be Anheuser-Busch InBev (NYSE: BUD), which holds a 47.6% market share of U.S. beer sales to retailers and a $145 billion market value.

AB-InBev's full year 2012 results are indicative of the mature beer market. The company’s volumes increased 1% last year but are still below 2008 levels, and last year’s revenue inched up less than 2% year over year.

As a result, the company has eyed acquisition as the best path to growth going forward. Last year, AB-InBev acquired the remaining portion of Grupo Modelo that it did not already own, for $20.1 billion. AB-InBev now has a portfolio of approximately 200 beer brands, including Stella Artois, Becks, and Michelob, in addition to Budweiser and Corona. The newly-formed beer giant now operates in 24 countries and employs 190,000 people worldwide. 

Smaller competitor Molson Coors (NYSE: TAP) holds a $9 billion market capitalization, but that hasn’t stopped it from entering the mergers and acquisition space itself. Molson Coors made its first break into emerging market expansion with its $3.4 billion acquisition of Central and East European brewer StarBev last year.

Until then, the United States made up more than 68% of Molson Coors’ total sales, and the company’s international operations were limited to Canada and the United Kingdom. By acquiring StarBev, the company will boost its portfolio of brands and grant it access to faster-developing economies.

The company’s new Central Europe operations were a key factor behind the 20% increases in both worldwide volumes and net sales in the first quarter as compared to the same period one year ago.

Craft beers continue to grow

As previously mentioned, strength in craft beers is what’s fueling the increase in global beer shipments. Boston Beer (NYSE: SAM), maker of Samuel Adams, has been a major beneficiary of this trend. Boston Beer is now a $2 billion business by market value and is growing much faster than its larger competitors.

Full-year net revenue rose 13% in 2012, and adjusted diluted earnings per share grew 11% year-over-year. The company’s success continued into the first-quarter this year, with revenue increasing 20% on the strength of 18% growth in shipments.

Of course, there’s a cost to this higher level of growth, which is Boston Beer’s sky-high valuation. The stock trades for 40 times trailing earnings, as compared to P/E multiples of 22 and 19 for Molson Coors and AB-InBev, respectively.

Moreover, both Molson Coors and AB-InBev offer their investors dividends, whereas Boston Beer does not. At recent prices, Molson Coors yields 2.7%, while AB-InBev pays a 2.4% annual dividend.

In the end, just as there are many beer varieties for adults to choose from, investors can choose different beer stocks according to their preferences. Die-hard growth investors will likely prefer Boston Beer for its significantly higher growth potential, while value and income investors should pick Molson Coors or AB-InBev for their reasonable valuations and solid dividend yields. All told, these are three highly profitable beer companies that can help keep you cool, and your portfolio hot, during the summer months.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Boston Beer and Molson Coors Brewing Company. The Motley Fool owns shares of Boston Beer. 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

Compare Brokers

Fool Disclosure