Which Brewer Stocks Are A Good Buy Now?
The Dynamic Wealth Report
August 6, 2008
The Truth About Budweiser
Recessions are a nasty thing. Officially a recession occurs when we have
two consecutive quarters of negative GDP. If you don’t know, GDP stands
for Gross Domestic Product. It’s simply a measure of all the goods and
services we produce as a nation. Growth is a good thing . . . negative
growth is bad.
As it now stands, we’re not in a recession. But it sure feels like one. The unemployment rate’s been rising. This means people are losing their
jobs. And many more are afraid of losing their jobs. The housing crisis
continues and the credit crunch has made it all but impossible to borrow
money. Consumer confidence numbers are dropping like a rock.
That’s not good when most of our economy is based on consumer spending.
Forget GDP. Forget the “official” definition of a recession. This
economic upheaval is continuing to destroy investment portfolios, and we
need to shift into recession proof investments.
Now, there’s not really a recession proof investment.
There are however certain investments that hold up better than others
during recessionary times. I wrote about this very fact about 6 months
ago. Take a look at my article
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In that article I suggested shifting a portion of your portfolio into
two companies who could provide growth in any economic environment.
Molson Coors Brewing (TAP) and Anheuser-Busch (BUD), both companies are
in one of my favorite industries - alcohol.
For those of you who followed my advice, you’d be up about 27% on BUD and basically flat on
TAP.
Now I really like Anheuser as a long term investment. They’ve captured
almost 50% of the market and make some of the most popular beers in all
of America, Budweiser and Bud Light. The company was founded in 1852 and
has been very successful ever since. Look back in time and you’ll see
how well the stock’s held up during tough economic times.
Unfortunately Anheuser is no longer a good investment. InBev, the large
Belgium brewer, recently struck a deal to acquire Anheuser. I consider
investing in BUD now to be dead money.
My other investment choice is Molson Coors Brewing (TAP).
Molson makes Coors Light, Molson Canadian, Coors, Killian’s Irish Red,
Keystone, Blue Moon and Zima. This last quarter has been a rough one for
them. Despite revenue growing 5% in the quarter they were hammered by
increasing costs. The company was hit on three sides with higher energy
costs, higher grain costs, and a higher tax rate. This along with
one-time and special charges of more than $103 million cut their
earnings by 56%.
I know that sounds scary, but I see it as an opportunity.
These one-time and special charges are a way for the accountants to mess
up the numbers and justify their high fees. If you remove these charges
the company actually made $0.93 per share for the quarter. Still less
than expected . . . but not as bad as originally thought.
Over the longer term, the industry is growing and the business is
strong. The company’s been able to pass along price increases to
customers. As they get costs under control, it sets up the company for
strong results going forward. The stock is down on the recent news. I
think it’s the perfect opportunity to add more to your portfolio.
• Rough Rice ($16.20 per CTW)
Rough Rice has been on a steady slide since April. The contract peaked
at over $22 per ctw when stores started limiting how much rice people
could buy. Recent news out of Thailand called for exports to slow
because demand was falling. I’m expecting this commodity to head still
lower.
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