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June 05, 2006
Do Suds Make Good Stocks?
Summer is officially here in Chicago. North Beach is filled with bathing beauties; the volleyball nets are up and running; and the beer gardens at the dozens of bars around the city are packed. Chicago, like many Midwestern cities, is a beer town--something I had to get use to when I moved here from Manhattan over a year ago. (I'm a rum kind of girl--as I like to pretend that I live on a Caribbean island, even when the wind makes it feel like ten degrees below zero.)
With all this beer drinking going on around me, it's hard to believe that the beer industry is facing some major growing pains. But while wine and spirits are buzzing along, the beer industry has been flat; i's a big reason why Anheuser-Busch, the self-proclaimed King of Beers has been struggling on the stock market in recent years.
But if you look beyond the big guys, there is a nice pocket of the beer industry that's looking good. Craft brewers (those small independent brewers that generally operate in small regions) are flying high--growing at something like 7% a year.
So what about their stocks? Most of the 1,400 or so craft brewers in the country are private. But there are a handful that are traded. Boston Beer Co., which makes Samuel Adams, is by far the most well known. And it's soaring these days, trading at $26.70, just $1 off its 52-week high. Redhook Ale Brewery is much smaller, but doing just as well. And Pyramid Breweries is in the middle of its 52-week range.
All are trading at premiums to their historical valuations. As such, it's good to wait for a dip in their prices. Otherwise, it's likely your investment could fall flat like a beer that's just sitting around.
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Nice thought about beer industry. I took a look at Boston Beer (SAM) and noted that the last quarter earnings reported May 10, 2006, showed a drop in results with the company earning $1.8 million, or $.13/share, down from $4 million or $.27/share in the prior year
I think it is wiser to invest in stocks that at least have done well in the very latest reporting period. That certainly is my approach. Rather than a Peter Lynch approach of noting all of the beer consumed around us, it is better to examine some of the financial results otherwise we may find our investments to be mainly suds.
Posted by: Robert Freedland at June 12, 2006 03:16 PM