Ambev Is Both Sinful and Defensive, and Worth a Look

Brazilian brewing company Ambev (NYSE:ABEV) isn’t extremely well known among traders in the United States. Ambev stock isn’t talked about much in the U.S. mainly because the company is less famous than Ambev’s corporate parent, Anheuser-Busch Inbev (NYSE:BUD), and Ambev’s beer-producing competitor, Heineken (OTCMKTS:HEINY).

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Much of this is due to a general home-country bias among stock traders. That’s unfortunate because people are missing out on a company with real potential. Granted, Ambev stock didn’t recover fully from the novel-coronavirus crisis like some stocks have done in recent months.

This, however, doesn’t mean that ABEV won’t get back to its previous peak price at some point. Some folks will pigeonhole Ambev stock as a sin stock. But a case can be made that it’s also defensive investment with growth potential.

A Closer Look at Ambev Stock

Priced quite affordably, Ambev stock only cost $2.80 per share recently. The stock is a good value as it has a trailing 12-month price-earnings ratio of just 14.83. That compares favorably to BUD (32.56) and HEINY (23.39).

Not only that, but Ambev offers a generous forward annual dividend yield of 4.56%. That’s a bigger payout than what BUD (2.69%) and HEINY (2.31%) have to offer at the moment.

As far as the price action is concerned, it seems that Ambev stock may have been excessively punished during the onset of the Covid-19 pandemic. The shares started this year at around $4.70, only to plunge below $2 in March. There’s been some price recovery since that time, which is a sign that the bulls may be in control of the action now.

A Legal Monopoly?

One feature that can make an investment more defensive is when the company has a monopoly, or at least a near-monopoly, in its market sector and geographical area.

It’s an even safer investment when the company isn’t under any imminent threat of a breakup of its monopoly. For example, it might not be a great idea to invest in a company if the local government is investigating that company for anti-competitive practices.

Ambev currently has no such impending threats. Moreover, as InvestorPlace contributor Ian Bezek points out, Ambev operates within a sizable consumer market:

“Brazil alone has more than 200 million people, and Ambev has access to many millions more with its businesses in the rest of the Americas. Ambev also enjoys concentrated markets; it’s No. 1 or 2 in virtually all its markets and has monopolistic market share in many places.”

Some folks might not like the idea of Ambev having monopolistic control over certain markets. Yet, that’s the reality of the situation and it’s probably net bullish for Ambev stock.

Protecting Liquidity

Informed investors have every right to ask companies what they’ve been doing to shore up capital during the pandemic. Preserving liquidity should be a top priority for companies now, and Ambev has demonstrated a commitment to reducing its capital expenditures.

Ambev Chief Financial Officer Lucas Machado Lira itemized a number of cost-cutting measures the company has either taken or planned to take:

  • Reduced spending on travel and internal events
  • Revisited Ambev’s marketing investments
  • Suspended “investments that are tied to large scale events that have been suspended or postponed”
  • Internalized some services
  • Reviewed Ambev’s trade spend on the company’s on-premise channel
  • Suspended or shifted “content creation … that does not speak to what consumers are currently going through”

Ambev stock might be categorized as a sin stock, but the company doesn’t seem to be committing the sin of overspending. If anything, it’s commendable that Ambev is doing what’s necessary to reduce costs and hopefully boost its bottom line.

The Bottom Line on Ambev Stock

For the time being, Ambev isn’t as well-known in the U.S. as Anheuser-Busch Inbev and Heineken. Plus, sometimes gets unfairly labeled as a sin stock.

However, traders should pay more attention to Ambev and consider the company’s shares as a defensive investment. The shares could regain their pre-pandemic peak, bringing substantial returns to patient shareholders.

David Moadel has provided compelling content and crossed the occasional line on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/ambev-stock-is-both-sinful-and-defensive-and-worth-a-look/.

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