Alcohol Stocks Offer Stability In A Tipsy Market

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 |  Includes: BRBMF, BREW, BUD, DEO
by: Dr. Harold Goldmeier

Summary

Alcohol stocks are non-cyclical,weather fluctuations in economies, are masters in marketing, distribution, and innovative R&D.

Investors comfortable with safety in size are able to invest in multinational corporations, vertically integrated, offering share price stability and acceptable dividend yields.

Craft beers constitute the fastest growing segment of the spirits industry. Risk transparency must guide investments in this sector.

Seeking Alpha analysts have been writing with gusto about alcohol beverage stocks for two years. I guess I will have to take my colleagues out for a beer, because I too like alcohol stocks. Investors comfortable with safety in size are able to invest in multinational corporations, vertically integrated, offering share price stability and acceptable dividend yields. Aggressive investors look to smaller distillers and craft brewers for growth and acquisition potential.

Alcohol stocks are non-cyclical, and weather fluctuations in economies well. They are masters at distribution and marketing with products available for every pocketbook. Innovative R&D develops flavorful tastes creating designer beers, liquors, sodas, and ciders. Craft beer brewers underpin growth in sales. Alcohol content varies from near nothing (1.6% in Shandy beer) to 101-proof (Wild Turkey) meeting demands at both ends of the consumer market.

Companies sector drinks appealing to the tastes of women, varying age brackets, and ethnic groups. Consideration is given to religious standards; many beers and liquors are certified kosher. Murree Brewery, on the Karachi Stock Exchange: MUREB, produces in a Muslim country selling in Europe and the Middle East.

SA analyst Nicholas Ward suggested a little more than a year ago buying

Diageo PLC (NYSE: DEO) at the $121/122 range, and InBev (NYSE: BUD) in the $85 range. DEO continues trading in the $120 per share range and yields 2.18, but did reach a 52-weeks high of $134. Sales in the last 12 months are up over 6%, and income growth is 27.2% by striping out costs in operations. DEO nearly doubled their stake in India's largest spirits maker expanding its global reach. DEO is deep into Latin America and Asia Pacific markets, is atop the alcohol market in the U.S. and in Europe with their premium brands.

BUD on the other hand slipped to $94 in September 2013. It clawed up to $116, and now trades at $107. BUD's dividend yield is about 2.5%. Sales growth is 8.6%, but income growth is substantial in the past 52-weeks. A drag is $50b in debt from acquisitions. Analysts are cautious. The debt load may suppress the share price for quite a while; however, I am confident BUD management knows how to squeeze overhead costs. They are as good or better marketers than any in the spirits industry. The stock is worth following and buying on a dip in share price.

Profitquotes.com from Ticker Technologies offers a succinct and timely chart of soda and alcohol stocks:


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Ambev SA

4:02 p.m.

6.90

0.01

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0.14%

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6.23

8.67

NA

NA

108.10B

Andrew Peller A NV

3:59 p.m.

14.01

0.24

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1.68%

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13.07

14.68

13.88

1.0100

158.23M

Andrew Peller Ltd Class

07/28

13.2997

UNCH

0.0%

12.02

13.58

NA

NA

150.21M

Anheuser Busch Inbev SA/NV

4:00 p.m.

107.04

0.94

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0.87%

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92.76

116.65

23.63

4.5300

174.58B

Big Rock Brew Incorporated

07/29

15.6506

UNCH

0.0%

14.33

17.24

NA

NA

107.61M

Big Rock Brewery Incorporated

1:47 p.m.

17.00

0.04

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0.23%

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14.70

19.99

48.58

0.3500

116.89M

Boston Beer Company

4:02 p.m.

217.75

2.65

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1.20%

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190.01

265.53

40.94

5.32

2.03B

Brick Brewing Company

3:40 p.m.

1.35

0.10

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8.00%

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1.14

1.69

135.00

0.0100

47.11M

Brick Brewing Ltd

08/01

1.1821

UNCH

0.0%

1.13

1.53

NA

NA

41.25M

Brown Forman Corporation

4:01 p.m.

87.55

0.90

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1.04%

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66.41

97.15

28.62

3.06

11.30B

Captiva Verde Indust

0:00 a.m.

0.348

UNCH

0.0%

0.06

0.43

NA

NA

6.78M

Captiva Verde Industries Ltd

0:00 a.m.

0.41

UNCH

0.0%

0.025

0.62

NA

NA

0

Castle Brands Incorporated

3:59 p.m.

0.9601

0.0399

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3.99%

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0.32

1.55

NA

-0.08

148.87M

China New Borun Corporation

4:02 p.m.

2.67

UNCH

0.0%

1.18

4.40

NA

NA

68.69M

Coca Cola Bottling Company Consolidated

4:00 p.m.

69.28

0.54

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0.77%

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59.06

89.40

25.95

2.67

494.73M

Coca Cola Company

4:00 p.m.

39.29

UNCH

0.0%

36.83

42.57

21.02

1.87

172.32B

Coca Cola Enterprises Incorporated

4:02 p.m.

45.31

0.14

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0.31%

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36.58

49.17

16.07

2.82

11.13B

Coca Cola Femsa Sab DE CV

4:02 p.m.

108.83

2.10

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1.97%

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92.64

149.66

NA

NA

22.56B

Compania Cervecerias Unidas S A

4:02 p.m.

22.50

0.06

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0.27%

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20.46

30.25

NA

NA

4.16B

Constellation Brands Incorporated

4:03 p.m.

83.59

0.33

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0.40%

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52.50

94.77

7.89

10.60

14.14B

Corby Spirit and Win

07/23

19.7566

UNCH

0.0%

17.25

20.77

NA

NA

479.57M

Corby Spirit and Win

07/21

18.5234

UNCH

0.0%

17.15

18.88

NA

NA

77.71M

Corby Spirit and Wine Ltd

3:55 p.m.

21.26

0.06

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0.28%

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19.07

22.21

23.37

0.9100

516.07M

Cott Corporation Que

4:00 p.m.

6.94

0.07

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1.02%

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6.60

8.84

NA

NA

652.48M

Craft Brew Alliance Incorporated

4:00 p.m.

11.43

0.21

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1.87%

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9.20

18.70

60.16

0.19

217.35M

Crystal Rock Holdings

10:17 a.m.

0.7999

0.0299

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3.88%

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0.75

1.53

40.00

0.02

17.09M

Diageo P L C

4:00 p.m.

119.29

0.93

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0.77%

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114.96

134.08

NA

NA

74.89B

DR Pepper Snapple Group Incorporated

4:00 p.m.

58.70

0.06

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0.10%

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43.18

61.92

16.22

3.62

11.45B

Embotelladora Andina S A

4:00 p.m.

20.86

0.54

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2.52%

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19.75

35.86

16.05

1.30

3.29B

Fomento Economico Mexicano S

4:03 p.m.

93.93

0.04

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0.04%

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82.36

106.63

NA

NA

168.05B

Global Key Invst

0:00 a.m.

0.24

UNCH

0.0%

0.23

0.54

NA

NA

5.90M

Leading Brands Incorporated

4:00 p.m.

4.14

0.042

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1.02%

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3.60

5.44

24.36

0.17

12.06M

Molson Coors Brewing Company Class B

4:03 p.m.

67.64

0.11

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0.16%

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48.18

75.55

18.04

3.75

10.85B

Molsoncoors Canada B NV

3:14 p.m.

77.99

0.25

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0.32%

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50.85

82.01

34.60

2.2543

1.47B

Monster Beverage Corporation

3:59 p.m.

65.21

1.25

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1.95%

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51.15

75.63

30.62

2.13

10.90B

National Beverage Corporation

4:00 p.m.

17.62

0.48

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2.80%

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15.42

22.26

19.16

0.92

816.46M

Pepsico Incorporated

4:00 p.m.

88.11

0.01

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0.01%

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77.01

93.09

19.94

4.42

132.76B

Reeds Incorporated

3:59 p.m.

5.00

0.04

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0.79%

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4.26

8.98

NA

-0.11

65.22M

Rocky Mountain Liquor Incorporated

07/31

0.115

UNCH

0.0%

0.08

0.205

NA

NA

6.65M

Russell Breweries

0:00 a.m.

0.068

UNCH

0.0%

0.05

0.08

NA

NA

5.36M

Russell Breweries Incorporated

07/31

0.065

UNCH

0.0%

0.025

0.095

NA

NA

5.12M

Sodastream International Ltd Ord

4:00 p.m.

34.05

1.05

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3.18%

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28.65

69.78

NA

NA

711.85M

Stonepoint Global Brands Incorporated

05/09

0.015

UNCH

0.0%

0.01

0.06

0.30

0.050

421845

Vina Concha Y Toro SA

4:03 p.m.

39.09

0.33

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0.85%

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33.10

43.50

NA

NA

1.46B

Williamette Valley Vineyards

3:43 p.m.

5.7699

0.0905

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1.59%

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4.35

7.60

21.37

0.27

27.97M

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Craft beers are the fastest growing segment of the alcohol industry. They are companies that produce small batches, use more or only natural ingredients, are largely owned by founders/brewers, and sell their products in limited geographical areas. Many craft breweries are linked to restaurants also owned by founders.

Goose Island in Chicago is perhaps the most famous craft brewery begun in 1988 with one then two brewpubs. It produces about 17 styles of brew most famously Urban Wheat and Honker's Ales, Bourbon County Stout, root beer and soda. GI sold to Anheuser-Busch.

Craft beers constitute the fastest growing segment of the spirits industry. Read on-line a more detailed report I wrote for a news magazine from my consulting work on craft beers.

Craft Brew Alliance (NSADAQ: BREW) is one company formed from mergers of several craft breweries extending back to 2008. In the first quarter 2014 net sales growth was 20% with the introduction of new beers to their inventories. First quarter gross margin rate increased 260 basis points to 27% from 24.4% in the first quarter 2013 reflecting improved efficiencies in breweries on sales over $3.5m. Most impressive is the decrease in SG&A to 28% from 32% with increases in sales.

BUD reportedly owns 32% of BREW and is their main distributor. Management claims they are investing more heavily in sales and marketing programs, perhaps partly explaining a low 2% net margin. Share price fluctuation went from $14.50 in May 2014 to $11.48 today. It is down from a 52-weeks high of over $18. In May, about 65,000 shares were granted to insiders, and fewer than 5,000 shares purchased by them. This is a cautionary note for a small investor, but BREW is in a segment that is expanding and M&A is eventful.

Check out Big Rock Brewery (OOTC: OTC:OTCPK:BRBMF). BRBMF has about 20 craft brand beers in its inventory, ciders, contract, and seasonal brews. It distributes its own products in several Canadian provinces. The stock is off a high over $17 in January 2014. It pays a dividend yield of 4.7%. Sales in the past 52-weeks are near $40m, and net profit is 5.4%. Three funds including Morgan Stanley Instl Intl Sm Cap Fund hold about 3.5% stake in BRBMF. Insider buying is strong in 2014. BRBMF is an up and coming company with shares selling at a reasonable price.

Alcohol stocks are sometimes referred to as sin stocks, but how bad are they when parodying Dr. Seuss and Shel Silverstein for inspiration:

"I do not drink craft beer and ale! I do not drink them, Sam-you fail. You do not drink them. So you say. Try them! Try them! And you may."

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I was a paid consultant to an organization regarding working with the spirits and craft beer industries.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.