The King of Beers.
 

What is happening to my BUD?

Did I wait too long to get out?

Re: The King of Beers.
 

Beer sales are down this year!

Must be all the college kids sitting in front of their computers playing poker, instead of out partying all night [img]/images/graemlins/wink.gif[/img]

Re: The King of Beers.
 

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Beer sales are down this year!

Must be all the college kids sitting in front of their computers playing poker, instead of out partying all night [img]/images/graemlins/wink.gif[/img]

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Not my fault... I am drinking while playing [img]/images/graemlins/smile.gif[/img] (normally PBR though)

Re: The King of Beers.
 

They're performing on par with the sector, so I think they'll gain the most when beer sales improve. Ride it out.

Re: The King of Beers.
 

Get out. Beer sales are down because wine and liquor sales are up. This is trend that will probably continue for the forseeable future.

There are too many good stocks and the market is too good to leave money in medocre stocks. (I would never leave money in an underperforming stock)

Re: The King of Beers.
 

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They're performing on par with the sector, so I think they'll gain the most when beer sales improve. Ride it out.

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This is terrible advice, why would you stay in a down sector?

Re: The King of Beers.
 

In my local deli in Brooklyn the beer area is filled with brews from Poland Russia ect. There is alot more competition. The rich are getting richer and poor getting poorer. Rich don't drink as much beer and the beer they do drink is not Bud. This is why Wal*Mart is not doing as well. TAP might do better. LQU is interesting, but the word is out.

Re: The King of Beers.
 

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Not my fault... I am drinking while playing (normally PBR though)

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Drinking while playing = -EV

Re: The King of Beers.
 

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They're performing on par with the sector, so I think they'll gain the most when beer sales improve. Ride it out.

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Actually, they are underperforming their industry group (Beverages - Alchoholic) by a fairly wide margin over the last 52 weeks.

Re: The King of Beers. - BUD analysis
 

Here's my take on BUD: Dump it, there are better opportunities. It will like underperorm the S&P over the next 6 months. Might make a more compelling buy if it drops to the $40 range and finds some support.

Stock Type: Large Cap Value.
Current Price: 44.77

Technically, BUD is trading below both its 50 day and 200 day moving averages, both of which are sloping down. A clear red flag! The stock is trading just above its 52 week low.

The Chart pattern is clearly a bearish trend, since mid-2004, when it broke down thru a long term uptrending channel.

IBD stock checkup ranks BUD a D+ in a D rated group. The stock has a relative strength rating of 14 (very low) and an Accumulation/Distribution rating of E (very heavy institutional selling).

Standard & Poors rates BUD a Hold with a 12 month price target of 49 (expect they will follow everyone else and lower this shortly). They show no confidence in BUDs current marketing strategies, but looking out to 2006 they expect investments in China to start benefitting the company.

Bank of America - Cut price target to $42. Banc of America Securities said Anheuser-Busch was likely to continue facing trouble on pricing & volumes competing against wine, spirits, and imported beer brands. "This will take time and money to fix," BofA added in a research note. The brokerage has a "neutral" rating on the company's stock.

Smith Barney Citigroup - Downgraded from Hold to Sell, with a price target of $41. Smith Barney said there is more downside risk to the stock "and at best, the stock is dead money over the next 12 months."

Goldman Sachs - lowered fair value estimate to $42.

Insider transactions - net sales over the last year, including recent sales by both the CFO and Controller. When the finance guys are selling, its generally not a good sign!

Re: The King of Beers.
 

It's all juniors fault.

Re: The King of Beers.
 

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This is terrible advice, why would you stay in a down sector?

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I have no problem waiting out cyclical trends. If you think the sector has no future, then that's a legitmate arguement. Otherwise, please tell me why BUD won't out-perform the sector, once the sector improves.

Re: The King of Beers.
 

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Actually, they are underperforming their industry group (Beverages - Alchoholic) by a fairly wide margin over the last 52 weeks.

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You have to understand, I'm with BUD for the long haul, so I really don't care how they compare to the industry as far as trading goes. Their margins are better, their EPS is better, and their P/E is better (this came from just a quick glance at Yahoo Finance). They account for nearly, if not more, than half of domestic beer sales. You're going to be hard pressed to convince me that they lack staying power...now I must drink some BUD.

Re: The King of Beers.
 

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If you think the sector has no future...Otherwise, please tell me why BUD won't out-perform the sector, once the sector improves.

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Obviously the sector has a future, you are just in the wrong part. The money that to be made in this sector is in some of the wine and liquor companies. The trend is towards upscale drinking and away from cheap beers.

Also, if a stock is struggling, I like to leave it and wait until it starts to perform to come back into it. Yes, I will miss the bottom, but this way I'm not stuck in an underperforming stock. Don't stay in a stock waiting for it to turn around, find a stock that has turned it around.

Re: The King of Beers.
 

Well, Buffett just bought this stock. They haven't released the exact amount, but since he only gets involved in meaningful purchases, it has to be at least $1 billion worth.

Generally if you can buy a stock below the level Buffett buys - which is very rarely possible- you will make a lot of money in the long run.

I haven't looked at it closely but I am going to.

They have a dominant position in the beer market and at some point beer (vs. hard liquor / wine) will recoup its status.

For the next year or so BUD may be dead money, but I wouldn't bet against beating the S & P with this stock over the next 5 or 10 years.

Re: The King of Beers.
 

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Well, Buffett just bought this stock

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First, do you have a source for this info?

Second, Buffett doesn't buy anything, Berkshire Hathaway makes investments.

Third, most transactions reported are really trades made by Lou Simpson managing the equities held by GEICO.

Fourth, the majority of Berkshire Hathaways earnings are not coming from its large ownership stakes in publicly traded companies.

Re: The King of Beers.
 

First, you could Google the Buffet thing and it would come up right away. I'm surprised you work in finance and didn't hear about this a month ago or so.

Second, I'm with JB on this: if you're not looking to get in and get out again, BUD is a good stock. They're pretty damn cheap right now, with a Price/EBV of 1.15. Their FCFY was 1.9% in '04, down from 3% in '03, but this is because of the heavy investment in China. China is the largest market in the world, and they consume more beer than the third, fourth, and fifth largest markets combined. Harbin, who was acquired in '04 right from under the feet of SABMiller, is the fourth-largest Chinese brewery, and AB also owns a 29% stake in Tsing Tao, the number one brewer. In addition, AB's brewery at Wuhan produces all the AB products for Asia, including Budweiser, the number one super-premium brand in China. Considering their strong and improving foothold in China, AB is well-positioned to take full advantage of the industry consolidation that many expect to take place in China. Currently, there are almost no national breweries in China; Harbin itself is only regional. As China urbanizes, the industry should undergo a consolidation much like the US experienced in the early to middle of the 20th Century. So far, it looks like AB's strategy is to increase share through acquisition. This proved successful for them in the past, but the risk is that they'll overpay for the assets.

Here's a hard-hitting fact about the potential of China: current consumption is 270 million barrels, or 20L per capita. Per capita consumption in South Korea and Japan is 45L per capita. If China simply matches the consumption of its neighbors, the world's largest market will more than double. All through endogenous growth. Unreal.

Domestically, the increasing popularity of wine and spirits has hurt the beer industry more than they expected. In fact, until two years ago the beer industry didn't even track liquor sales. There is hope, though, in that this could represent simply a trend. The low carb backlash has already begun, for example, and that trend was also partially responsible for the decline in beer popularity, since beer is viewed as full of calories and carbs. AB is also attempting to regain market share from wine and spirits with the introduction of new product lines. The Bacardi Silver line competes directly with drinks such as Smirnoff Ice, and B to the E is targetted at club-goers who have turned from beer to cocktails in recent years. The introduction of APLs and other packaging innovations, such as 16oz aluminum cans for the Michelob family, are designed to reintroduce beer as a classy, sophisticated drink. For those who still love beer, Bud Select has been a big hit. Since its introduction in January, it has captured a 1.9% market share, better than Mich Ultra at the same point in the product life. If Bud Select is as popular as Mich Ultra, it will be a big big boost to AB.

The point of all this is that while the domestic market is struggling right now, all AB has to do is tread water for a bit. If the fad fades and the upward trending substitution of wine and spirits reverses, Bud stands to gain the most as the industry leader. If not, they have positioned themselves very well to compete in China, a market larger than the US and the explosive potential to be completely dominant. Also, AB has a long history of being a well-run, intelligently managed company, so its not like they haven't had to overcome bleak prospects before (the microbrew explosion of the early '90's comes to mind; everyone was crowing about the death of the macrobrew then, too).

If you're looking for a stock to buy and then sell before Christmas, BUD isn't for you. If you're looking for long-term growth and returns above the S&P, I like their chances.

Re: The King of Beers.
 

Sounds like this guy knows what he's talking about.

RunDown... Re: The King of Beers.
 

Sorry about this hi-jack...

RunDownTheHouse... you seem to know a lot about the wines/liquor/beer industry. Could you comment on Constellation Brands (STZ)? I've held this for a number of years now, and it has simply done great. What do you think of it going forward?

-RMJ

Re: The King of Beers.
 

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If you're looking for a stock to buy and then sell before Christmas, BUD isn't for you. If you're looking for long-term growth and returns above the S&P, I like their chances.

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Then why not sell now and buy back in sometime in the future?

P/E is 16.3 and forward p/e is 16, that's very little growth for the immediate future. I'd wait until they start showing some growth before I would jump in.

Re: The King of Beers.
 

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First, you could Google the Buffet thing and it would come up right away. I'm surprised you work in finance and didn't hear about this a month ago or so.

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Did a quick search before the other post, but didn't go back far enough... this was announced back in April apparently. Thanks!

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If you're looking for a stock to buy and then sell before Christmas, BUD isn't for you. If you're looking for long-term growth and returns above the S&P, I like their chances.

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This is basically what I said. It is important to remember that BRK buys businesses for the long haul and doesn't care much about short term results. However, the opportunity cost for an individual investor to act in a similar fashion is huge.

To quote Buffett with regard to BUD, "I would not expect the earnings to do much for some time, but that's fine for us."

Bottom line: Put BUD on your watch list, but make your profits somewhere else this year.

Re: The King of Beers.
 

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Then why not sell now and buy back in sometime in the future?

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Because most of us aren't fortune-tellers.

First, let me say that I agree there are better prospects out there than BUD - Altria (MO) looks kickass, and I'd go there before BUD. But if you've got a good-sized portfolio, you like to pick stocks instead of just be in index funds, you like to buy big consumer products stocks, etc, BUD is a fine choice.

So I agree that there's an opportunity cost to BUD, but I disagree that its huge. Furthermore, outside of daytraders, nobody believes that you can predict the market. The only investment strategy that makes sense is to find the companies that have a sound economic basis and a reasonable stock price, and then jump in. You can judge the risk inherent in a stock: if a company has an inflated price and horrible economic underpinnings, there's a lot more downside risk than upside potential. The stock will drop much more on bad news and rise much less on good news than a company with sound economics and a reasonable price. But being able to predict when those ups and downs will come is impossible.

That sort of long-term growth strategy is the most reasonable one, and there's a reason Buffet has been so successful with it. We'd all love to find the next hot IPO or tech bubble or whatever, make a million dollars overnight and get out, but my crystal ball must be broken.

Oh, and your p/e numbers are a bit misleading, because p/e numbers are inherently flawed. They're bullshit. With a P/EBV of 1.15 and a CAP of 3, BUD is the cheapest its been in a long time.

Re: RunDown... Re: The King of Beers.
 

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Sorry about this hi-jack...

RunDownTheHouse... you seem to know a lot about the wines/liquor/beer industry. Could you comment on Constellation Brands (STZ)? I've held this for a number of years now, and it has simply done great. What do you think of it going forward?

-RMJ

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I've only researched them from the perspective of the leader in an industry that's the biggest exogenous risk to the beer industry right now, so I don't know much qualitative stuff. But from a quick glance at their numbers, they look awful right now. P/EBV of over 5, and more worrisome, a FCFY of (11%) and (25%) over the past two years. They're definitely expensive right now.

PS None of this is to be construed as investment advice, past results aren't indicative of future performance, etc etc. This goes for all of my posts in this thread.

Re: The King of Beers.
 

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Because most of us aren't fortune-tellers.


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You don't need to be a fortune teller to time the market.

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Furthermore, outside of daytraders, nobody believes that you can predict the market.

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There are many people that follow simple market timing strategies that have been proven to work over time, and they are not day trading. Market timing and day trading are two very different things.

Suggested reading... Stock Trader's Almanac by Hirsh (updated Annually) and Paul Merriman's web site (he recommends timing mutual funds) at http://www.fundadvice.com/

Re: The King of Beers.
 

Wait, are you saying that there's a simple, formulaic way to get returns above the S&P?

If so, why aren't we all just following this formula? It'd be like punching a clock, right?

Re: The King of Beers.
 

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Wait, are you saying that there's a simple, formulaic way to get returns above the S&P?

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The simple answer to the first question is Yes!

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If so, why aren't we all just following this formula? It'd be like punching a clock, right?

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For the same reason there are still Fish at the Poker tables. The uninformed masses don't take the time to educate themselves.

Re: The King of Beers.
 

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Oh, and your p/e numbers are a bit misleading, because p/e numbers are inherently flawed. They're bullshit. With a P/EBV of 1.15 and a CAP of 3, BUD is the cheapest its been in a long time.

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Book value is a useless metric. I'll take p/e over book value every day of the week. If you think p/e is misleading what about book value. Do you realize that a piece of capitals book value has no relation to it's real world value? Often equipment has been depreciated to a zero accounting value is still be used to perform work.

Re: The King of Beers.
 

Its not book value, its economic book value. Things like accelerated appreciation, write-offs, off-blance sheet financing, etc, are all pulled from the notes and accounted for. It is a much more accurate number than any metric designed for debt investors.

Re: The King of Beers.
 

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Its not book value, its economic book value.

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If I understand it correctly it's still a crappy metric. Capital is only as good as the revenue/earnings it can generate. Bad management can still turn capital into losses. It's what you do with the capital that's important.

What happens if the downtrend in beer sales accelerates? Then who will buy the tools used to make beer when there is no market for beer? Unless a company owns assets that are very liquid it's dangerous to try and judge it value based on those assets. Often the very factors that are effecting the compainies business are effecting the potential price of capital.

Example, if we owned a bunch of printing presses for printing newspapers and suddenly it became much cheaper to print newpapers on laser printers, overnight our printing presses would become almost worthless.

Re: The King of Beers.
 

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Unless a company owns assets that are very liquid

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The Budweiser truck just pulled up with some more of those "liquid assets" [img]/images/graemlins/wink.gif[/img]

Re: The King of Beers.
 

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It's what you do with the capital that's important.

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Ok, very true. P/EBV is still a good starting point for judging how fairly valued a stock is. If that ratio is exactly 1, that means the company could completely liquidate and give shareholders the exact value of their stock holdings (note that this is AFTER debt investors have been paid). For companies with a P/EBV greater than 1, there's some expectations of growth built into the price of the stock. Anything above 2 or so begins to look expensive, although that depends, of course. Anything lower than .5 or so is also dangerous, because that means that expectations of value destruction are priced into the stock.

I'm not sure why you'd think EBV is a crappy metric; in fact, I'd be shocked if you've ever actually seen it done correctly outside of a couple finance textbooks. But any metric that adjusts for the accounting distortions built into the current system is, by definition, better than metrics based on those distortions, right?

As far as what management's performance with their capital being the most important, BUD's ROIC is a very healthy 14.5% or so, making their economic profit margin over 8%. Compare this to TAP, whose ROIC is 6.5% and EPM is a meager .7% (STZ 5.7/(.3), for further comparison).

When you take BUD's P/EBV in conjunction with other metrics like their EPM and CAP, you get the picture of a very sound company, economically.

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Example, if we owned a bunch of printing presses for printing newspapers and suddenly it became much cheaper to print newpapers on laser printers, overnight our printing presses would become almost worthless.

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A much better example in this case would be if we owned a bunch of breweries, and all of a sudden it became much more popular to drink wine or spirits, or not drink at all [img]/images/graemlins/grin.gif[/img]. First, note that even in this case, we would be much better off than if we held the stock of many other companies, since the P/EBV is so reasonable. If the example actually happened, BUD could liquidate, and give us back almost all of our investment (low downside risk). If we were invested in a firm with a higher P/EBV, we would receive less of our investment back. Second, that's more of an exogenous risk than endogenous. Quantitative numbers can take you only so far, and after that its up to you to judge if the expectations and risk embedded in the stock are reasonable. Personally, having considered the possibility of Prohibition resurfacing and BUD liquidating, I think the expectations are more than reasonable, especially since the price has trickled down over the last few months.

Again, I want to say that I do think there are better opportunities out there. But BUD is definitely nowhere near a sell, and I wouldn't even say its a hold.

Of course, none of this is to be construed as investment advice, do your own diligence, past performance does not indicate future performance, etc.

Re: The King of Beers.
 

Thanks for some insightful debate/analysis.

My father worked for BUD for many years and it was the first stock I owned. Sort of a 'buy what you know' approach. The stock has done well for my family, pays a dividend and currently comprises 15% of my portfolio. I plan on holding mostly because I do not do much bouncing in and out of stocks. 'Timing' the market is a game for the brave or foolish IMHO.

FWIW other stocks I own include ET, AMTD, RFMD, SLE, FII, MLI, ANDE, MCD, LC.

Re: The King of Beers.
 

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P/EBV is still a good starting point for judging how fairly valued a stock is. If that ratio is exactly 1, that means the company could completely liquidate and give shareholders the exact value of their stock holdings

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I understand what you are trying to do, but it doesn't work. Capital is useless if it can't be used to create earnings. Often the very assets that you are selling are unlikely to be desired by others. If Walmart builds a megastore in Alaska and discovers that there aren't enough sales in Alaska to make money, is it likely that someone else can buy that store and make money? Probably not, and then your asset becomes a liability.

Capital that your company can't turn into earnings, probably won't be very useful for other companies to turn into earnings either. Unless you have bad management, and then you are in big trouble too.



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BUD's ROIC is a very healthy 14.5% or so, making their economic profit margin over 8%.

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I don't just want health, I want growth. I want my stock price to grow, and the quickest way for that is for my earnings to grow.

Re: The King of Beers.
 

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Capital that your company can't turn into earnings, probably won't be very useful for other companies to turn into earnings either. Unless you have bad management, and then you are in big trouble too.

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Right, but I ignored that in part because those assets are worth something. Even in the worst-case scenario, somebody is going to be willing to pay something for the land, buildings, etc, and so a company with a good P/EBV will be better off respectively than another company in their sector with a worse P/EBV.

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BUD's ROIC is a very healthy 14.5% or so, making their economic profit margin over 8%.

[/ QUOTE ]I don't just want health, I want growth. I want my stock price to grow, and the quickest way for that is for my earnings to grow.

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Um. ROIC is the return on invested capital, the free cash flow divided by invested capital. Its better than earnings because both the net income and the asset base are adjusted for accounting distortions.