{"id":32864,"date":"2012-10-09T09:36:29","date_gmt":"2012-10-09T13:36:29","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/10\/beer-stocks-the-keg-party-is-in-emerging-markets\/"},"modified":"2012-10-09T09:36:29","modified_gmt":"2012-10-09T13:36:29","slug":"beer-stocks-the-keg-party-is-in-emerging-markets","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/10\/09\/beer-stocks-the-keg-party-is-in-emerging-markets\/","title":{"rendered":"Beer Stocks: The Keg Party is in Emerging Markets"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

Back in April, I wrote favorably about Molson Coors ($<\/span>TAP<\/a>)<\/strong> (see \u201cBeer Stocks: Crack One Open<\/a>\u201d), noting that the brewer was significantly cheaper than Anheuser Busch InBev ($<\/span>BUD<\/a><\/strong>) and SABMiller (SBMRY)<\/strong> and that it paid the best dividend of any major brewer.\u00a0 At 3.1%, its dividend yield at the time was nearly double that of Anheuser Busch InBev.<\/p>\n

Since then, Molson Coors is up a modest 10%, more or less in line with the S&P 500.\u00a0 Meanwhile, BUD has rallied by more than 20%.<\/p>\n

But looking longer term, we see an even starker contrast.\u00a0 Since the beginning of 2010, Molson Coors has trailed its \u201cBig Beer\u201d peers by a wide margin.\u00a0 Anheuser Busch InBev, SABMiller and Heineken (HINKY) <\/strong>are up 66%, 50%, and 30%, respectively.<\/p>\n

But Molson Coors?<\/p>\n

TAP has been flatter than a three-week-old keg, actually showing a slight loss over the past two years.<\/p>\n

\"\"<\/a><\/p>\n

So, what gives?\u00a0 What explains the lack of investor interest in Molson Coors?<\/p>\n

It\u2019s really quite simple.\u00a0 Molson Coors missed the party in emerging markets.<\/em><\/strong><\/p>\n

Prior to its June acquisition of Eastern European brewery StarBev, Molson Coors had negligible exposure to emerging markets.\u00a0 Its business was limited almost exclusively to North America and the UK, where beer brewing is a slow-growth business.\u00a0 And outside of its trendy Blue Moon brand, Molson Coors had also largely missed out on the one promising growth outlet for the North American market: upscale premium microbrews.<\/p>\n

The company found itself selling low-margin, mass-market beer to an aging and shrinking North American and British market.\u00a0 Molson Coors faced relentless competition from both Budweiser and Miller at the mass-market level, and from innumerable up-and-coming foreign and premium brands at the higher end.\u00a0 Not the sort of scenario that would make investors thirsty for more.<\/p>\n

Even after the StarBev merger, Molson Coors will only sell about 14% of its volumes outside of North America and the UK.<\/p>\n

Meanwhile, take a look at BUD.\u00a0 Anheuser Busch InBev sells more beer in Latin America (34% of volumes) than it does in North America (32% of volumes).\u00a0 Overall, emerging markets make up more than half of all beer sold.<\/p>\n

And BUD isn\u2019t even the best positioned of the group.\u00a0 Heineken is a long-term recommendation of the Sizemore Investment Letter<\/a><\/em> precisely because of its exposure to emerging markets and specifically to Africa, the next great growth market.\u00a0 Heineken gets 21% of its profits from Africa already, and this figure is set to skyrocket as African incomes rise and millions of Africans join the ranks of the middle classes.\u00a0 Rival SABMiller is also a major player in Africa, and particularly in South Africa.<\/p>\n

Heineken also made a major expansion into Southeast Asia this year with its purchase of Asia Pacific Breweries.<\/p>\n

So, where does all of this leave Molson Coors?<\/p>\n

With the global beer market already well on its way to consolidation, there are not a lot of attractive acquisition targets left to snag, and those that do come up are not likely to go cheaply.\u00a0 Realistically, Molson Coors will be primarily a North American seller of suds for the foreseeable future.<\/p>\n

This isn\u2019t all <\/em>bad.\u00a0 \u00a0While the Echo Boomers\u2014the large generation of Americans in their 20s and very early 30s\u2014do not slosh the stuff as enthusiastically as previous generations (they tend to prefer vodka-based mixed drinks), there are signs of life in the domestic market.\u00a0 U.S. beer shipments are actually up this year, after falling slightly for the past three years in a row.\u00a0 Mass-market brewing may no longer be a growth business in the United States and Canada, but it is generally pretty stable.\u00a0 We don\u2019t have to worry about any of the major brewers facing financial distress any time soon.<\/p>\n

Looking at Molson Coors\u2019 financials, I continue to believe the stock has value as a cheap income stock.\u00a0 TAP trades for just 11 times expected 2013 earnings and pays a dividend of 2.9 percent\u2014the highest of all major beer brewers. \u00a0This isn’t a “home run” stock, but it’s one that is priced to offer decent returns going forward.<\/p>\n

Bottom line: If you want growth, Heineken remains my favorite brewer.\u00a0 But I consider Molson Coors a worthwhile choice for a long-term dividend-focused portfolio.<\/p>\n

This article first appeared on InvestorPlace<\/a>.\u00a0 <\/strong>Sizemore Capital is long HINKY.<\/em><\/p>\n

SUBSCRIBE <\/a><\/strong>to Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

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