To a casual observer the action in Ambev SA (ADR) (NYSE:ABEV) is screaming story. The stock is trading 22.7 million shares per day. It’s one of the fastest-trading issues on the exchange. But look a little closer, do a little math and you’re going to find things aren’t always what they seem. There is a story here, but it’s not the one you think.
Ambev is a 3G Capital company. This is a collection of separate operating companies created by three smart operators from Brazil — Jorge Lemann, Bernardo Hees and managing partner Alex Behring.
Ambev is, technically, a unit of a much larger company, Anheuser-Busch Inbev NV (ADR) (NYSE:BUD). Notice the ticker symbol — this is Budweiser. It’s also over 200 other brands, including Corona, Stella Artois and Beck’s. Last year it closed on SAB Miller, adding those brands to the stable.
Now let’s do some math. BUD has 1.61 billion shares, trading at about $110 each, a market capitalization of $189 billion. ABEV, which also runs a ton of Pepsi bottling operations around the world, has 15.7 billion shares, trading at about $5.70 each, a market cap of $87.86 billion.
Well, 3.4 million times $110 is $374 million. That’s how much money trades in BUD stock each day. Multiply ABEV’s daily volume of 32 million shares by its stock price, $5.70, and you get $182 million. It’s not even close. BUD is where the money is. The volume is proportional to their market caps.
Now, there is one area where ABEV is superior. The performance of its stock is better, up 15% so far in 2017, against 5% for BUD. But a lot of that difference has come in just the past three trading days. Seen over the course of the previous three months, the performance of BUD is slightly better.
Which Do You Buy?
As to which is a better buy, it is hard to go wrong.
Both companies run under the 3G principal of “zero-based budgeting.” That means everything each unit’s spend, down to the last paper clip, must be justified annually. You don’t start with last year’s numbers in making this year’s budget. You start at zero and justify everything.
It’s a tough discipline, but it also separates the superior managers from the lazy ones. By thinking of their units anew each year, managers are always thinking of how they can change things to make a bigger profit.
Just consider BUD for a moment. For the first three months of 2016 it earned $275 million on revenue of $9.4 billion. For the first three months of this year, after adding SAB Miller, earnings were $1.377 billion on revenue of $12.922 billion. Note, too, that much of that income was not yet subject to the 3G discipline, since it represented Miller.
What Would Buffett Do?
Warren Buffett loves the 3G guys. Buffett has backed the 3G guys in building Kraft-Heinz Co. (NASDAQ:KHC), which has thrown off $4.60 per share in dividends since he combined the two companies in 2015.
The 3G guys and Buffett also built Restaurant Brands International Inc. (NYSE:QSR) — the ticker symbol stands for quick service restaurants. This includes Burger King, Tim Horton’s and (now) Popeye’s Fried Chicken. The stock has nearly doubled in value since its launch late in 2014, and I am already 13.5% ahead since getting on board in March. Oh, and look — a dividend check of $38 just arrived. I think I’ll put that back into the company.
In short, you get on board with these guys, you wait, you make money. Currencies rise, stocks fall, but management that knows what it’s doing will make you money.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in QSR.