2014 October 4
Today's focus is on beer: TAP, BREW, BUD, SAM, with a hint of New York banking.
An overwhelming number of stocks came to my attention over the past few weeks and I think these few are a good place to start your own research. As always this is some of my research you may consider while you make your own independent decisions, perhaps with the help of a broker or competent advisor.
Generally, and here, my investing time frame is no less than 3 to 5 years, and up to 10. Within that time frame my primary considerations today are: The faltering Chinese economy, the anticipated recurrence of a downturn driven by the US's over leveraged financial system (within the next 2-5 years), long term returns (either in dividends or monetized intellectual capital), and price control. With that in mind there are a lot of potential trades here too, and they should be fairly easy to spot but I'll try to hint at them as well.
I don't like this bank as much as others due to it's limited scope, however that does limit it's risk exposures in a downturn. I wouldn't want it long term at a price above $20, and I think it can be had below that price. I'd be surprised to pick this up around $18.50 at it's current level of sexyness, and quite happy with that. Not super volatile and should be readily available around $22. However, I'm still holding onto USB from the last financial crisis and have a number of other financials I think are a little stronger, but this could fill a slow and steady spot quite nicely.
Americans now make the best beers in the world. Where once local brewers across the world made Belgium style or German style lager and ale with great deference, such worshipers of the brew now make American style Ales. From Australia to Scotland, Japan to South Africa, you can now find American Ales brewed locally. BREW made a deal inBev (Anheuser-Busch) for distribution a some years back and then not long ago fully acquired Goose island and I believe with that purchase in 2013 Anheuser-Busch came to own 32.2%, their distribution buy in plus Goose island's share, while the founders only own 18%.
BREW makes Redhook, Widmer, and Kona, mass appeal beers to people tired of the Millercoors safe beers. When I bought it for $0.92 in '09 I thought I was getting out of something that wasn't really moving anywhere when I sold it for $1.32, but then beer really blew up and here we are at $15 (not to speak of SAM). The problem now is that inBev has been doing a great job of buying up the best Craft Brewers in the world and increasing their production. There was a time when the Widmer brother's Hefeweizen was the best Hefe you could get in the states, almost hands down (some regional exceptions). But someone decided (finally) it'd be a good idea to distribute the World's actual #1 Hefeweissbier, Weihenstephaner, and the scale of production is so large that it's actually not hard to find in any city I've been to. As yet this huge production increase hasn't negatively affected the quality.
This is a round about way of saying that big business has seen the value of Craft brews, and is buying them up and ramping up production. For this reason I almost think ABI/BUD is a better buy than BREW, so I'll review that next, but BREW is estimating it will double it's earnings per share this year. Anything around $13 is likely a fair price, but I'd peg $10 as a good price. At 1.5x book $8.93 would be a great price. Make what concessions you will for a growth company, but with a Beta of 1.63 I think you can make a trade for it and maybe get lucky, or pick a good price and hope it hits.
But BREW's future is far from certain, and they have neither the best beers nor are they on the bleeding edge of brewing. Nor do they have the capital to pick up the best of the best. It was a great buy in '09, but I would've sold half of them when it hit $12. It'd be hard to say if I would keep that half for the next 10 years, or cut it to a fourth at some point or sell it completely. I think the challenges facing BREW are significant however. I think the founders are wrong to run it at the level it's reached. If you're buying BREW long term I think you must be hoping they get acquired, but I don't see them as a reasonable acquisition target. Better to let them go bankrupt and buy their breweries at auction. That being the case, it's book value is about $6 and $12 would be a fair price. I still think $10 is a good price.
I think it's actually a little high right now to start a position in. It's volatile enough to trade with, if you'd like. I think $94 would be a great price (about what I got it for), $105 would be fair. If you're trading, above $115 would be your exit point which would be an 8.5% gain after about 2 to 3 months plus any dividend received. I obviously like where they are going, I like the acquisitions, I like the new distributions, and the global exposure, not to mention the diversified beverages offered and growth potential. I'm a long term accumulate here until such time as the market changes.
Numbers aren't bad - if a little to heavy on institutional investment for me. I prefer to get to my equities before big money, so there's someone for me to sell to. But it's what you expect. This company is a steady sideways mover, nice balance sheets, something you'd expect an institutional investor to be interested in. It's steady today and will slog through the future, though I'm not so sure it'll be in good shape in the years to come. It has room to grow in market share, but nothing to grab that market share with. There are plenty of growth stocks out there with 2% dividends, but this isn't one. I do think it'll be moving up price wise, that has the potential to make it a good trade, but it'll be turning down quick after that. Might make it as high as $80 in the next 6 months. I'd think $64 might be a fair price, but I don't think I'd pay more than $58.
In a reverse to BUD's moves SAM started with the edge of the beer market and is moving center. Funny because the edge of the beer and malt beverage has moved so far away from where SAM started you could almost consider it as mainstream as Dos Equis (Heineken International). Lots of institutional ownership. I'd normally say at a price below 220 might be a good place to start, but it's already there I think 214 would be a fair price. I might wait for a more lofty goal of 205 if I was going to trade it. But trading with a stock trading at 7.6 times it's book value and 82% institutional investors means everyone is speculating on this stock, and to me that's a really bad sign. Even Google only has a Price to book of 4.14, and Apple is 4.93, and though Amazon's is 14.06, SAM isn't on the level of any of those companies. If I was investing in SAM the most I'd want to pay is around 143, 5x book, but I don't think that's going to happen any time soon. If I had kept the stock I bought at $35in 2009 I probably would have sold it at around $90 in 2011 or around $160 in 2013. All things considered though, they're making the growth play, and for SAM it may well pay off. 143 is also 25x earnings, coincidentally. But I think anything over 171 is completely unreasonable to me, but 162 is 25x and 195 is 30x future earnings a metric many are fond of. That's where the pricing is, the market has spoken.
That should round it out for now. Happy hunting.
Today's focus is on beer: TAP, BREW, BUD, SAM, with a hint of New York banking.
An overwhelming number of stocks came to my attention over the past few weeks and I think these few are a good place to start your own research. As always this is some of my research you may consider while you make your own independent decisions, perhaps with the help of a broker or competent advisor.
Generally, and here, my investing time frame is no less than 3 to 5 years, and up to 10. Within that time frame my primary considerations today are: The faltering Chinese economy, the anticipated recurrence of a downturn driven by the US's over leveraged financial system (within the next 2-5 years), long term returns (either in dividends or monetized intellectual capital), and price control. With that in mind there are a lot of potential trades here too, and they should be fairly easy to spot but I'll try to hint at them as well.
- Financial Institutions inc (NASDAQ: FISI, 22.9) is a financial services company. Basically a financial company that serves Western & Central New York via Five Star Bank as well as auto loans. PE 12.5, PS 2.7, PB 1.25x, PCF 10.78, Div 3.32%, 63.76% Institutional.
I don't like this bank as much as others due to it's limited scope, however that does limit it's risk exposures in a downturn. I wouldn't want it long term at a price above $20, and I think it can be had below that price. I'd be surprised to pick this up around $18.50 at it's current level of sexyness, and quite happy with that. Not super volatile and should be readily available around $22. However, I'm still holding onto USB from the last financial crisis and have a number of other financials I think are a little stronger, but this could fill a slow and steady spot quite nicely.
- Craft Brew Alliance (NASDAQ: BREW, 15.06) is a company I used to own a great many shares of and follow regularly, but sold out 3 weeks too soon and misted out on pentadectupeling. Sa la vie. This is one of those rare Trade/investing stocks. It begins the day as a good trade, and might make a good investment if things go well. But everyone knows it at this point, and it's reflected in the fundamentals:PE 64.84, PS 1.48, PB 2.53, PCF 22.3, Div NA, 24.13% institutions.
Americans now make the best beers in the world. Where once local brewers across the world made Belgium style or German style lager and ale with great deference, such worshipers of the brew now make American style Ales. From Australia to Scotland, Japan to South Africa, you can now find American Ales brewed locally. BREW made a deal inBev (Anheuser-Busch) for distribution a some years back and then not long ago fully acquired Goose island and I believe with that purchase in 2013 Anheuser-Busch came to own 32.2%, their distribution buy in plus Goose island's share, while the founders only own 18%.
BREW makes Redhook, Widmer, and Kona, mass appeal beers to people tired of the Millercoors safe beers. When I bought it for $0.92 in '09 I thought I was getting out of something that wasn't really moving anywhere when I sold it for $1.32, but then beer really blew up and here we are at $15 (not to speak of SAM). The problem now is that inBev has been doing a great job of buying up the best Craft Brewers in the world and increasing their production. There was a time when the Widmer brother's Hefeweizen was the best Hefe you could get in the states, almost hands down (some regional exceptions). But someone decided (finally) it'd be a good idea to distribute the World's actual #1 Hefeweissbier, Weihenstephaner, and the scale of production is so large that it's actually not hard to find in any city I've been to. As yet this huge production increase hasn't negatively affected the quality.
This is a round about way of saying that big business has seen the value of Craft brews, and is buying them up and ramping up production. For this reason I almost think ABI/BUD is a better buy than BREW, so I'll review that next, but BREW is estimating it will double it's earnings per share this year. Anything around $13 is likely a fair price, but I'd peg $10 as a good price. At 1.5x book $8.93 would be a great price. Make what concessions you will for a growth company, but with a Beta of 1.63 I think you can make a trade for it and maybe get lucky, or pick a good price and hope it hits.
But BREW's future is far from certain, and they have neither the best beers nor are they on the bleeding edge of brewing. Nor do they have the capital to pick up the best of the best. It was a great buy in '09, but I would've sold half of them when it hit $12. It'd be hard to say if I would keep that half for the next 10 years, or cut it to a fourth at some point or sell it completely. I think the challenges facing BREW are significant however. I think the founders are wrong to run it at the level it's reached. If you're buying BREW long term I think you must be hoping they get acquired, but I don't see them as a reasonable acquisition target. Better to let them go bankrupt and buy their breweries at auction. That being the case, it's book value is about $6 and $12 would be a fair price. I still think $10 is a good price.
- Anheuser-Bush inBev (NYSE: BUD, 107.45) owns just about all the good beer that's well distributed out there, and distributes most of the rest. I already own shares of this company, for reasons that should be obvious from the previous paragraph. PE 19.45, PS 3.75, PB 3.3, PCF 12.13, DIV 1.86%, Institutional 5.91%.
I think it's actually a little high right now to start a position in. It's volatile enough to trade with, if you'd like. I think $94 would be a great price (about what I got it for), $105 would be fair. If you're trading, above $115 would be your exit point which would be an 8.5% gain after about 2 to 3 months plus any dividend received. I obviously like where they are going, I like the acquisitions, I like the new distributions, and the global exposure, not to mention the diversified beverages offered and growth potential. I'm a long term accumulate here until such time as the market changes.
- So we might as well talk about Molson Coors Brewing Co at this point. (NYSE: TAP, 74.01) because that's what due diligence is all about. These guys bought one of my favorite college breweries Leinenkugel's (Leini's) and one of my biggest complaints is they've chosen not to distribute one of my favorite beers and instead have chosen to distribute more mediocre beers, which their line up is already full of. Still, the laggards are still drinking that swill which is a fair enough reason to distribute it, but as a fan of beer generally and an investor specifically I'm disappointed at their lack of high end brews. And Miller fortune doesn't count. PE 19.39, PS 3.25, PB 1.53, PCF 13.27, Div 2.0% Institutional 80.43
Numbers aren't bad - if a little to heavy on institutional investment for me. I prefer to get to my equities before big money, so there's someone for me to sell to. But it's what you expect. This company is a steady sideways mover, nice balance sheets, something you'd expect an institutional investor to be interested in. It's steady today and will slog through the future, though I'm not so sure it'll be in good shape in the years to come. It has room to grow in market share, but nothing to grab that market share with. There are plenty of growth stocks out there with 2% dividends, but this isn't one. I do think it'll be moving up price wise, that has the potential to make it a good trade, but it'll be turning down quick after that. Might make it as high as $80 in the next 6 months. I'd think $64 might be a fair price, but I don't think I'd pay more than $58.
- Lets finish of with Boston Beer Company Inc (NYSE: SAM, $217.72) another investment I carried for quite a while and sold a little too soon. I actually found BREW during a due diligence review for SAM. I like their line up and direction, but few of their products. Twisted tea, Angry Orchard, and the whole line of Sam Adams beers are all products by SAM. PE 38.15, PS 3.39, PB 7.59, PCF 26.46, Div NA, Institutional 81.79%.
In a reverse to BUD's moves SAM started with the edge of the beer market and is moving center. Funny because the edge of the beer and malt beverage has moved so far away from where SAM started you could almost consider it as mainstream as Dos Equis (Heineken International). Lots of institutional ownership. I'd normally say at a price below 220 might be a good place to start, but it's already there I think 214 would be a fair price. I might wait for a more lofty goal of 205 if I was going to trade it. But trading with a stock trading at 7.6 times it's book value and 82% institutional investors means everyone is speculating on this stock, and to me that's a really bad sign. Even Google only has a Price to book of 4.14, and Apple is 4.93, and though Amazon's is 14.06, SAM isn't on the level of any of those companies. If I was investing in SAM the most I'd want to pay is around 143, 5x book, but I don't think that's going to happen any time soon. If I had kept the stock I bought at $35in 2009 I probably would have sold it at around $90 in 2011 or around $160 in 2013. All things considered though, they're making the growth play, and for SAM it may well pay off. 143 is also 25x earnings, coincidentally. But I think anything over 171 is completely unreasonable to me, but 162 is 25x and 195 is 30x future earnings a metric many are fond of. That's where the pricing is, the market has spoken.
That should round it out for now. Happy hunting.