{"id":33335,"date":"2012-11-06T14:35:05","date_gmt":"2012-11-06T19:35:05","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/11\/whiskey-stocks-to-burn-the-throat-beam-brown-foreman-and-diageo\/"},"modified":"2012-11-06T14:35:05","modified_gmt":"2012-11-06T19:35:05","slug":"whiskey-stocks-to-burn-the-throat-beam-brown-foreman-and-diageo","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/11\/06\/whiskey-stocks-to-burn-the-throat-beam-brown-foreman-and-diageo\/","title":{"rendered":"Whiskey Stocks to Burn the Throat: Beam, Brown-Foreman and Diageo"},"content":{"rendered":"

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

\"\"<\/a>In the whiskey swilling days of my youth, I always preferred Jack Daniel\u2019s Tennessee Whiskey to Jim Beam Kentucky Bourbon. I was far from a whiskey connoisseur, but it just seemed to go down smoother.<\/p>\n

Regrettably, I\u2019m not as young as I used to be and, to quote Hank Williams, Jr., \u201ccorn bread and iced tea have taken the place of pills and 90 proof.\u201d\u00a0 All my rowdy friends have, alas, settled down.<\/p>\n

Today, when I want a good North American whiskey I\u2019m more likely to pour myself a Crown Royal or a Maker\u2019s Mark on the rocks.\u00a0 My drinking habits have crawled out of the backwoods and gone bourgeoisie.<\/p>\n

The market for North American whiskies (defined for the purposes of this article as Kentucky bourbon, Tennessee whiskey, Canadian whiskey and rye) has been transformed in recent decades.\u00a0 Following the general trend of other popular spirits, it\u2019s gone upmarket and international.\u00a0 Most popular brands are owned by a handful of international spirits groups: Beam Inc (NYSE:$<\/span>BEAM<\/a>), Brown-Foreman Company (NYSE: $<\/span>BF-B<\/a>)<\/strong> and Diageo PLC (NYSE: $<\/span>DEO<\/a>)<\/strong>.<\/p>\n

We\u2019ll start with Beam, which is the purest play on Bourbon.\u00a0 Beam is the owner of the mainstream Jim Beam brand, as well as the higher-end Maker\u2019s Mark and Knob Creek \u00a0and the lower-end Old Crow.\u00a0 But Beam\u2019s offering are not limited to Bourbon; the company also markets Canadian Club Canadian whiskey, Teacher\u2019s scotch whisky, Sauza tequila, and Courvoisier cognac, among other smaller brands.\u00a0 And perhaps denting the company\u2019s macho image a little, it is also the owner of Skinnygirl.<\/p>\n

Brown-Foreman is best known for one brand\u2014Jack Daniels Tennessee Whiskey\u2014though it too has a diverse lineup of names, including El Jimador tequila, Finlandia vodka and Southern Comfort, as well as several smaller brands.<\/p>\n

Diageo is the largest of the three and the least dependent on North American whiskey.\u00a0 Diageo owns the Crown Royal Canadian whiskey and Seagrams American whiskey brands, though it is far more famous for its Johnny Walker scotch, Smirnoff, Ciroc and Ketel One vodkas, Captain Morgan rum and Jose Cuervo tequila among many, MANY other brands.\u00a0 Diageo is the largest and most diversified spirits group in the world.<\/p>\n\n\n\n\n\n\n
Company<\/td>\nTicker<\/td>\n\n

Price\/Earnings (Trailing)<\/p>\n<\/td>\n

\n

Dividend Yield<\/p>\n<\/td>\n<\/tr>\n

Beam Inc<\/td>\nBEAM<\/td>\n\n

26.8<\/p>\n<\/td>\n

\n

1.4%<\/p>\n<\/td>\n<\/tr>\n

Brown-Foreman Co<\/td>\nBF-B<\/td>\n\n

25.6<\/p>\n<\/td>\n

\n

1.6%<\/p>\n<\/td>\n<\/tr>\n

Diageo PLC<\/td>\nDEO<\/td>\n\n

23.3<\/p>\n<\/td>\n

\n

2.3%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

One thing you will quickly notice is that none of the whiskey distillers are cheap.\u00a0 All trade for well over 20 times trailing earnings, and only Diageo trades for less than 20 times expected earnings for next year.\u00a0 None are particularly high dividend yielders either, though Diageo can make the proud claim of being an International Dividend Achiever.\u00a0 (International Dividend Achievers much have at least five years of continuously rising dividends.)<\/p>\n

While the high prices are something of a put-off, they are not entirely unjustified.\u00a0 The premium spirits business has been a rare source of growth in recent years, much of which has been generated by rising sales to emerging market consumers and particularly Chinese consumers.\u00a0 In fact, Diageo has been a core holding of the Sizemore Investment Letter<\/em> for years for this very reason.<\/p>\n

Beam also beat analyst estimates last week with a blow-out quarter.\u00a0 Beam has had a good run since its split from Fortune Brands last year, and I expect more good results to come.<\/p>\n

Another reason for the lofty valuations is the consolidation that is still taking place in the industry.\u00a0 Beam and Brown-Foreman are in a sweet spot in that they are large enough to be taken seriously in a cutthroat market yet small enough to still be considered as possible acquisitions by a Diageo or Pernod Ricard.\u00a0 Beam and Brown-Foreman have market caps of $9 billion and $14 billion, respectively, whereas Diageo weighs in at $72 billion.\u00a0 Neither would be an easy acquisition for Diageo, but the belief that the company might<\/em> be interested has been enough to maintain a premium price on the would-be acquisitions.<\/p>\n

For investors, it comes down to a very simple question: what are you looking for in an investment?<\/p>\n

In Diageo, you have a massive, internationally-diversified group that gets roughly 40% of its revenues from emerging markets.\u00a0 Though I might prefer to buy it at a slightly cheaper valuation than I see today, this is the kind of stock you can buy, tuck into a drawer, and forget about.\u00a0 It should be a solid dividend producer (and grower) for decades.<\/p>\n

Your motivations for buying one of the other two would be quite different given their relative sizes.\u00a0 Of the two, I would go with Beam.\u00a0 In Beam, you have a company that was recently spun off from a larger conglomerate (Fortune Brands) that made no sense, and a management team that is eager to prove what an independent Beam can do.\u00a0 \u00a0Hedge fund superstar Joel Greenblatt has written volumes on the virtues of investing in spinoffs, and I am inclined to agree with him.<\/p>\n

This is not to say I am bearish on Brown-Foreman, but of the three whiskey distillers discussed in this article I find it to be the least compelling of the lot.<\/p>\n

Disclosures: Sizemore Capital is long BEAM and DEO.<\/em><\/p>\n

The post Whiskey Stocks to Burn the Throat: Beam, Brown-Foreman and Diageo<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

Related posts:<\/p>\n