Which Brewer Stocks Are A Good Buy Now?

| August 6, 2008 | 0 Comments

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 Make Money On $3 Beer.

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.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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