[RunDownHouse]

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.