{"id":35879,"date":"2013-02-01T11:54:29","date_gmt":"2013-02-01T16:54:29","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=35879"},"modified":"2013-02-01T11:54:30","modified_gmt":"2013-02-01T16:54:30","slug":"whiskey-and-beer-still-better-long-term-bets-than-wine","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/01\/whiskey-and-beer-still-better-long-term-bets-than-wine\/","title":{"rendered":"Whiskey and Beer Still Better Long-Term Bets than Wine"},"content":{"rendered":"

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

Constellation Brands (NYSE:$<\/span>STZ<\/a>),<\/b> the world\u2019s largest publically-trading winery, took an absolute beating yesterday when the U.S. Department of Justice torpedoed the Grupo Modelo (OTC:$<\/span>GPMCF<\/a>)<\/b> – Anheuser-Busch InBev (NYSE:$<\/span>BUD<\/a>) <\/b>merger on anti-competitive grounds.<\/p>\n

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

Kruk: Switched to whiskey.<\/p>\n<\/div>\n

Given the wide variety of alcoholic beverage choices, the government\u2019s move seems a little absurd.\u00a0 Yes, roughly 80% of all beer drunk in the United States is sold by just four mega-brewers.\u00a0 But I hardly see this as being risky or detrimental to the wellbeing of American consumers.\u00a0 It reminds me of a (perhaps apocryphal) quote from the baseball player John Kruk.\u00a0 When told by his doctor that he needed to stop drinking so much beer, Kruk smiled and said he would switch to whiskey.<\/strong><\/p>\n

If beer became too expensive due to monopolistic pricing, U.S. consumers might do the same.<\/p>\n

But whatever you think of the government\u2019s decision, Constellation was the biggest loser here.\u00a0 Under the planned merger, Constellation would have had exclusive distribution and marketing rights for Corona and Modelo\u2019s other beer brands in the United States (Anheuser-Busch InBev would have acted as the supplier).<\/p>\n

Constellation needed this.\u00a0 As I wrote in July of last year when the deal was initially announced, Whiskey and Beer are Better Long-Term Bets than Wine<\/a>.<\/strong><\/p>\n

While wine is more popular than ever among American drinkers, it\u2019s not the best business to be in at the mass-market level.\u00a0 Think about it.\u00a0 Off the top of your head, how many beer brands can you name?\u00a0 A dozen or more without even having to strain?<\/p>\n

Now\u2026how many wine labels can you name?<\/p>\n

Unless you are a true connoisseur, you would have a hard time naming more than one or two.\u00a0 Outside of the elite Ch\u00e2teau Lafite Rothschilds of the world, the vast majority of wines have very little in the way of name recognition.<\/p>\n

As I wrote in July,<\/strong>\u201cOutside of, say,\u00a0Coca-Cola (NYSE: $<\/span>KO<\/a>)<\/strong>, beer and spirits are probably the most recognizable and valuable brand names in existence.\u00a0 Not surprisingly, premium beer and spirits businesses tend to enjoy high margins and high returns on equity relative to their peers.<\/i>\u00a0[As a case in point, Diageo (NYSE:$<\/span>DEO<\/a>)<\/strong> enjoys a return on equity roughly double that of Constellation.]<\/p>\n

\u201cWine is a different story.\u00a0 The attractiveness of a given vineyard varies from year to year, and few have national or international brand awareness.\u00a0 Wine connoisseurs know their favorite vintages, but there is little brand loyalty at the mass-market level.\u00a0 For a company of Constellation\u2019s size, wine is a much harder business to operate.\u201d<\/i><\/p>\n

After yesterday\u2019s 17% drubbing, Constellation trades for 15 times earnings and 2 times sales.\u00a0 This is not expensive by today\u2019s market standards, but it\u2019s far from cheap.<\/p>\n

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

Constellation Brands (NYSE:STZ)<\/p>\n<\/div>\n

Before the Modelo-Bud merger was announced last summer, Constellation was a $20 stock.\u00a0 The merger announcement caused the stock to nearly double in the six months that followed.\u00a0 So without Modelo, is Constellation a $20 stock again?<\/p>\n

Probably not.\u00a0 But without Modelo, it\u2019s certainly not a $40 stock either.<\/p>\n

I would recommend avoiding Constellation for now.\u00a0 \u00a0In the world of booze stocks, there are better values out there.\u00a0 My favorite today?\u00a0 Dutch megabrewer Heineken (OTC:$<\/span>HEINY<\/a>)<\/strong>.<\/p>\n

At 20 times earnings, Heineken is far from cheap.\u00a0 But it\u2019s one of the best options today for getting exposure to the rise of the emerging market consumer, and particularly the rise of the up-and-coming African middle class.<\/p>\n

Disclosures: Sizemore Capital is long HEINY.<\/p>\n

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

The post Whiskey and Beer Still Better Long-Term Bets than Wine<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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