Many people think breweries perform well in recessions, but this is a Wall Street myth. While it’s true that breweries perform better than most companies during recessions, they’re not the most resilient stocks available. Therefore, if you’re concerned about the broader market eventually hitting a wall, then you might want to look into Wal-Mart Stores, Inc. (NYSE:WMT), Dollar Tree, Inc. (NASDAQ:DLTR), or Johnson & Johnson (NYSE:JNJ) (amongst many others).
Dedication to quality
Many companies say they’re dedicated to quality, but more times than not it’s just hot air. Molson Coors Brewing Company (NYSE:TAP), on the other hand, is telling the truth. The company’s World Class Manufacturing (WCM) strategy started off slow, but it’s now showing excellent results.
In 2012, malting plant reliability jumped from six days to 18 days, maintenance costs per ton of malt produced dropped 18%, factory efficiency for the Tadcaster Brewery jumped 15%, Moncton Brewery efficiency improved 8%, and Molson Coors Brewing Company (NYSE:TAP) as a whole achieved $851 million in savings over the past five years.
Molson Coors Brewing Company (NYSE:TAP) is well known for its cost-cutting expertise, and rightfully so. But it’s also known for its strong company culture and innovation. According to Glassdoor.com, an impressive 71% of employees would recommend the company to a friend, and an even more impressive 83% of employees approve of CEO Peter Swinburn. Based on anonymous reviews, it’s clearly evident that Swinburn is liked and trusted. It all starts at the top, and Swinburn has done an excellent job creating a family-oriented environment where teamwork is commonplace.
This strong company culture leads to fewer distractions when a company is attempting to innovate and hit its targets. Therefore, it should come as no surprise that Molson Coors Brewing Company (NYSE:TAP) is highly innovative.
One very impressive aspect of the company’s philosophy is that it never wants to stop changing. Many companies want to rely on products or services it currently offers for future growth. That might work for several years, but this game plan will eventually run out of steam and fail.
Molson Coors understands that consumers are ever-changing, and in order for consumer interest to remain piqued, new products, or twists on old products, must be introduced on a consistent basis. Simply put, Molson Coors keeps its product line fresh. By taking calculated risks, Molson Coors greatly increases its odds of thriving through innovation.
Molson Coors vs. peers
Molson Coors has seen revenue increase over the past three years. Earnings have declined over that same three-year period, but profits have still been strong. It should also be noted that Molson Coors delivered strong profits in 2008 and 2009, which wasn’t an easy task for any company in any industry.
Another example of Molson’s quality efficiency is its profit margin of 9.8%. And its debt-to-equity ratio of 0.6 is right inline with the industry average. Furthermore, Molson Coors yields 2.5%, which is better than what you will find for the companies below.
Boston Beer Co Inc (NYSE:SAM) has been on a tear. Over the past three years, the stock is up more than 157%. Revenue has consistently improved annually, and though earnings dipped slightly in 2012, Boston Beer has still been able to deliver healthy profits on a consistent basis.
What might stand out most about Boston Beer Co Inc (NYSE:SAM) is a short position of 21%. This may seem odd considering Boston Beer owns a stellar balance sheet and sports a profit margin of 9.8%. But this elevated short position is all about valuation — Boston Beer is currently trading at 42 times earnings, which makes it very expensive. Boston Beer doesn’t offer any yield.
Boston Beer is best known for its well-known brand, Sam Adams. And that brand is now offered in a “Sam Can.” Sam Adams spent $1 million on improving the beer can, and this investment has led to slightly better taste. Other basic features for the “Sam Can” include a flared lip and a wider top. If you plan on flying with JetBlue Airways Corporation (NASDAQ:JBLU) at any point in the near future, then you will be happy to know that Sam Adams’ Sam Cans will be available for purchase.
This type of innovation and maneuvering shows how Boston Beer’s management stays ahead of the game.
Anheuser-Busch InBev NV (ADR) (NYSE:BUD) is by far the largest player of this group. Annual revenue has been inconsistent, but earnings have substantially improved over the past three years. Since Anheuser-Busch InBev NV (ADR) (NYSE:BUD)‘s IPO, its stock has seen a steady ascent. Considering the company’s close to 50% U.S. market share for beer sales, over 200 brands (including Budweiser, Bud Light, Michelob, and Becks), and strategic acquisitions, the same type of steady performance is very possible in the future.
Below is a chart showing Anheuser-Busch’s performance versus peers over a five-year time frame:
As you can see, Sam Adams has been the big winner, but looking ahead, keep in mind that Sam Adams is the most expensive, and that it doesn’t pay a dividend.
Anheuser-Busch might not have as much growth potential as its peers since it’s a mature company, but it’s likely to be the most resilient to economic downturns thanks to its broad brand portfolio and sheer size. Anheuser-Busch also yields 2.1%.
Conclusion
All three aforementioned companies offer different types of investment opportunities.
Boston Beer is a good momentum play, but as is the case with most momentum plays, risks are high. If any bad news breaks, it could lead to a gap down.
Anheuser-Busch is the best option for those who are looking for a defensive play with a little yield.
Molson Coors is a good option for investors who don’t worry about broader market conditions. If you want to invest in an innovative company with strong leadership and growth potential, then consider Molson Coors.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Boston Beer and Molson Coors Brewing Company. The Motley Fool owns shares of Boston Beer.
The article Should You Tap Into Or Out of Molson Coors? originally appeared on Fool.com and is written by Dan Moskowitz.
Dan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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