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The best investment opportunities in foreign alcohol stocks are domiciled in Chile. Two Chilean stocks, Vina Concha y Toro (NYSE:VCO) and Compania Cervecerias Unidas (NYSE:CCU) provide investors with low valuations and acceptable growth trends which make them very attractive relative to other foreign alcohol stocks. These securities are also attractive because they provide exposure to the attractive Chilean stock market.

Computing Future Valuations from Growth Projections

Shares of VCO and CCU trade at reasonable valuations while other global alcohol stocks trade at much higher valuations:

Ticker

Company

Country

P/E

Earnings Growth Est.

P/S

Sales Growth Est.

VCO

Vina Concha y Toro

Chile

15.0

3.8%

1.7

10.9%

CCU

Compania Cervecerias Unidas

Chile

15.7

8.3%

2.1

8.7%

BUD

Anheuser-Busch InBev

Belgium

20.2

12.9%

3.6

18.5%

DEO

Diageo

United Kingdom

23.0

10.2%

4.2

7.5%

ABV

AMBEV

Brazil

29.1

8.0%

9.1

9.0%

Unfortunately, growth trends would need to be extrapolated far into the future to somehow justify higher price-to-sales and price-to-earnings multiples of most of these peers. To illustrate this, future valuation multiples of global alcohol stocks were modeled by combining expected growth and trailing valuation multiples. Graphs of future price-to-earnings and price-to-sales ratios based on analyst earning growth estimates and historical sales growth follow:

(click to enlarge)Forward PE

(click to enlarge)Forward PS

The projected crossover dates span well into the future which demonstrate how Vina Concha y Toro and Compania Cervecerias Unidas shares dominate most competitor valuations well into the future. The only exception is Anheuser-Busch whose forward P/E ratio crosses over Vina Concha y Toro in a reasonable time frame. All-in-all, these projections illustrate how the valuations of CCU and VCO are attractive relative to peers.

Top-Down Considerations Favor Chile

We must also consider the merits of investing in the markets which in which these alcohol stocks trade. To assess currency premiums or discounts, the domiciles of these stocks were screened for discounts to Purchasing Power Parity ((PPP)) of their currencies versus the dollar. To assess the risk of investing in different countries Investment Freedom and Property Right scores were collected from Investment Freedom and Property Right scores. Each metric helps weigh risk or value:

The Investment Freedom score assesses restrictions on foreign and domestic investment, legal recourse available to firms and investors, as well as how burdensome regulations are for investors. Higher scores indicate higher freedom, and 100 is the highest score.

The Property Right score assesses how well the government protects private property, how well the government punishes those who unlawfully confiscate private property and corruption in the court system. Higher scores indicate greater property rights, and 100 is the highest score.

Purchasing Power Parity ((PPP)) is a relative price level that would allow a customer to buy the same amount of a good domestically as they could by exchanging domestic currency for foreign currency and then buying that good in a foreign country. Simply put, if PPP holds I would be able to buy the same amount of gas in the US as I could in Mexico, either by paying X dollars in the US or exchanging X dollars for Y pesos and then buying the gas in Mexico. Since currencies deviate from PPP, investors could convert dollars into a currency with a discount relative valuation and buy more assets in the foreign market than they could with dollars in the domestic market.

A table of discount currencies and risk scores reveals that Chile is compelling when compared to the other countries from which these alcohol stocks hail:

Country

Relative Valuation

Investment Freedom

Property Rights

India

-63.05%

35

50

Pakistan

-56.66%

35

30

Sri Lanka

-54.91%

30

40

Egypt

-52.87%

65

35

Taiwan

-47.42%

65

70

Ukraine

-47.25%

20

30

Thailand

-42.16%

40

45

The Philippines

-38.31%

40

30

Peru

-36.26%

70

40

Malaysia

-36.12%

45

50

Poland

-35.94%

65

60

Argentina

-34.58%

40

20

Lithuania

-33.52%

80

60

China

-32.87%

25

20

South Africa

-30.92%

45

50

Hungary

-30.77%

70

70

Mexico

-29.59%

60

50

Hong Kong

-28.56%

90

90

Indonesia

-28.27%

35

30

South Korea

-27.43%

70

70

Czech Republic

-27.20%

70

70

Turkey

-25.79%

70

50

Russia

-21.95%

25

25

Colombia

-19.43%

65

50

Singapore

-14.34%

75

90

Chile

-13.97%

80

90

Saudi Arabia

-11.22%

40

45

Brazil

-6.55%

50

50

Israel

-5.26%

80

70

United States

0%

70

85

United Kingdom

8.33%

90

90

Euro

9.51%

NA

NA

Canada

27.62%

75

90

Japan

31.95%

60

80

New Zealand

41.05%

75

95

United Arab Emirates

44.10%

35

55

Sweden

42.05%

90

90

Denmark

50.70%

90

90

Australia

61.04%

80

90

Switzerland

76.04%

80

90

Norway

83.96%

65

90

Chilean stocks afford a currency that is more undervalued than all of the alcohol stock domiciles except for Mexico. However, its property rights and investor freedom are assessed as being much better than those of Mexico. Thus, there is less country risk in Chile.

Conclusion

Investors who are looking to add global alcohol stocks to their portfolio should consider buying shares of VCO and CCU. They have lower price multiples than their peers and provide exposure to Chile, a market with acceptable risks and an undervalued currency.

Please read the article disclaimer.

Source: 2 Refreshing Chilean Alcohol Stocks On Sale Compared To Peers