Have a Drink on Me
Dave is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last week, I posted about sticking with stocks that may be boring but can produce great returns, especially because the stocks come with high dividends (see here). However, there is another group of stocks that can not only help you throw a kickin' party, but can also add a little buzz to your portfolio. All of these stocks are in the business of selling alcohol. Let's compare these five companies to see which ones are worth buying and which ones might make you sick.
Anheuser-Busch InBev (NYSE: BUD) makes beer, mostly notably of course being Budweiser.
Brown-Forman (NYSE: BF-B) makes a variety of hard alcohol products, including well known brands such as Jack Daniels and Southern Comfort.
Constellation Brands (NYSE: STZ) makes a variety of wine brands and also mixes in some vodka and whiskey brands.
Diageo (NYSE: DEO) makes a number of very well know alcohol brands, including Smirnoff, Captain Morgan, Crown Royal, Guinness, Johnnie Walker, Jose Cuervo and Tanqueray to name a few.
Molson Coors (NYSE: TAP) sells mostly beer, including well known brands such as Coors, Molson and Keystone.
We'll use a handful of charts from YCharts to show how these companies stack up on important metrics. YCharts isn't perfect, so we'll try to fill in the blanks where data was not available.
Not a metric itself, but let's take a quick look at how the companies' share prices have performed. Past performance is not an indicator of future potential, but it is always good to see if a company has been able to succeed in the past. Here is a look at the three year performance.
Molson is the only one that has not held up. All others have performed relatively well.
A look at the P/E ratio trends over the past three years shows some interesting movement. We see Constellation Brands' P/E plummeting to relatively low levels. Conversely, Brown-Forman has risen from near 15 up to almost 26. Molson and A/B have stayed in decent ranges with A/B commanding a premium multiple to Molson. Diageo was not charted by YCharts, but for reference, their current P/E is 25.63, just shy of the 25.89 high P/E of Brown-Forman.
There may be no simpler and more important metric than revenue growth. Lots of companies can manufacture good earnings (for a while at least), but revenue growth illustrates product demand strength. Unfortunately, none of these companies have much revenue growth, including Diageo (not charted below).
How much cash can you get out of these companies, even if they don't go higher? Molson has the high value here at 2.9%, while Constellation offers nothing. All others are between 1-2%. Those are solid dividends. Nothing spectacular, but respectable.
Lastly, let's look at how companies are operating using the debt to equity ratios and return on equity. The debt to equity ratio shows how much leverage companies are utilizing to generate higher earnings for each shareholder. Too much debt causes problems, but an appropriate amount of debt can help produce additional benefit for shareholders, as long as the additional earnings outweigh the interest charges. The chart below doesn't show anything too alarming. Let's move on to return on equity.
The return on equity (ROE) is a good metric to check on because a low or declining ROE can be alarming. Why? Because it shows how well management is reinvesting its earnings. If the company is reporting great earnings, but ROE is low, then they would be better out just paying out cash as a dividend and letting shareholders find a better place to invest it. As we can see above, Molson has a low ROE at 7%, but the others are at respectable levels. BUD is not shown above, but has ROE of 22.3% and Diageo has ROE of 30.2%.
Which to Pick
Let's start by ruling out what not to buy. We'll count out Constellation Brands. While they have the lowest P/E, they also offer no dividend, a so-so 17% ROE, and one of the higher debt-to-equity ratios. Without any revenue growth, there isn't much to invest in. We'll also take out Molson. It has a consistently low ROE. Thankfully, they pay a high 2.9% dividend, but you can likely get better total returns out of the other companies.
Picking between the other three is more challenging. I'm going with A/B for its stability, 1.6% dividend yield, relatively low P/E and high ROE. If you want to go more aggressive, go with Diageo. It has a much higher P/E, but also has a better dividend yield and ROE. Also, their brands (Smirnoff, Captain Morgan, Crown Royal, Guinness, Johnnie Walker, Jose Cuervo and Tanqueray) are tough to beat.
Zaegs has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend 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.If you have questions about this post or the Fool’s blog network, click here for information.