by Charles Sizemore | October 3, 2013 8:39 am
From the news, you would think that Brazilians had stopped drinking beer. Ambev (ABV), the Brazilian brewing giant, is expected to see mildly negative volume growth this year, as slower economic growth and rising inflation appear to have dampened the party spirits.
Ambev stock — which trades as a separate ADR despite being controlled by global brewer Anheuser-Busch InBev (BUD) — has followed the Brazilian market lower this year. In dollar terms, ABV is down about 17% from its February high vs. a loss of 15% on the popular iShares MSCI Brazil ETF (EWZ).
So, after its recent spill, is ABV stock a buy?
Not at current prices.
True enough, the brewer is one of the purest plays on the rise of Latin American living standards. This is a durable macro trend and, in my view, one of the most attractive investment themes of the next decade. But trading at 23 times expected 2013 earnings and yielding only 2.3% in dividends, ABV can’t be considered a screaming bargain.
What about its behemoth international partner, Anheuser-Busch InBev?
BUD is the largest brewer in the world and one of the most diversified. It counts more than 200 beers in its product portfolio, claims six of the 10 most valuable beer brands in the world, and it sells more than half of its beer by volume in emerging markets.
Anheuser-Busch InBev isn’t “cheap” trading at 20 times earnings, but for a high-quality, defensive dividend grower with unparalleled reach, I wouldn’t consider it expensive.
Earlier this week, I wrote about my favorite way to invest in emerging markets — Western-domiciled multinationals with an oversized presence in emerging markets. Anheuser-Busch InBev would certainly make the cut here.
But as attractive as BUD is, it’s not my favorite. That distinction belongs to Dutch-based megabrewer Heineken (HEINY).
Heineken depends on Western Europe for a larger chunk of its revenues than Anheuser-Busch InBev, which has muted investor enthusiasm. But Heineken gets about half of its revenues and more than 60% of its sales by volume from emerging-market countries, and it has excellent positioning in Africa, the last real investing frontier of any size.
Africa already accounts for 22% of Heineken’s sales by volume, and this percentage will only increase with time as African consumer trade-up from home brews to branded beer.
Best of all, Heineken trades for a reasonable 17 times earnings and pays a modest 1.8% dividend.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he was long HEINY. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.
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