Pros Tap Molson Coors

Posted by: Ben Steverman on December 10, 2008

Thirsty for an investment that could actually perform well in a recession? UBS (UBS) analyst Kaumil S. Gajrawala serves up one possibility.

Beer maker Molson Coors’ (TAP) main brands include Coors Light, Canadian favorite Molson and Carling, which claims to be Britain’s number one lager. In late 2007, it created a joint venture with SABMiller (SAB.L) — called MillerCoors — to market both companies’ products, including Miller Lite, in the U.S.

In a Dec. 10 research note, Gajrawala makes shares of Molson Coors his “top pick.” Why?

1. The MillerCoors joint venture could create larger-than-expected cost savings. The merger of the two brewers’ marketing operations could save $1 billion over the next five years, Gajrawala estimates.

2. Conditions look right for beer makers generally:

In tough economic times, we expect consumers to shift alcoholic consumption to the ‘tried and true’ or what we would refer to as premium and sub-premium American beers like Coors Light, Miller Lite and Bud Light.

And Gajrawala says there is evidence that cheap beer is indeed making a comeback.

Data suggest beer volume is outpacing more-expensive wine and spirits. The volume of beer sold is recently up 3.1% to a two-and-a-half year high, Gajrawala notes, while beer pricing is up 5%.

Also, beer makers, which increased prices when commodity prices rose earlier in 2008, haven’t been forced to cut those prices later in the year. Cost-conscious consumers also seem to be buying in bulk with 12- and 24-packs of beer getting more popular.

There are worries for Molson Coors: Cost savings might not materialize and sales could suffer in Britain.

But if you’re worried about a serious recession, cheap beer might be one answer.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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