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Three Cheers for Spirits

10/23/2002 12:00 am EST


Neil George

Editor, Profitable Investing

“While the markets may have you down, don’t reach for the bottle – reach for the guys that make the bottles," says Neil George, editor of Total Return Advisory. The advisor has three favorites among the spirits makers. Meanwhile, Vahan Janjigian, editor of Forbes Growth Investor, quips, "Wassup?" as he selects a beer maker.

Says Neil George, “Our portfolio continues to hold Pernod-Ricard (PDRDY OTC), a French company. It’s one of a small group of wine and booze purveyors with a stable of solid desired brands and labels. Sales continue to climb, management is hyper-driven to make a profit for shareholders, and costs are falling, resulting in operating income gains. Pernod also pays a nice dividend of 2.3%.

“Then there’s Allied Domecq (AED NYSE). You might not recognize the name, but you probably know its products, which include leading labels like Beefeater, Canadian Club, Maker’s Mark, and a whole lot more. While booze is at its core, the company also caters to other vices with its Dunkin Donuts and Baskin Robbins franchises. Given the rising and sustained demand for its products, along with its impressive 3.2% yield, Allied Domecq is a buy.

Diageo (DEO NYSE) walked away with the crown jewels of the Bronfman family’s Seagram fortune. Diageo was happy to buy those long-established product lines and it’s now one of the rulers of the premium drinks market. From Johnny Walker scotch to Captain Morgan rum, Diageo is rock solid with an enormous value of long-standing brands.”

(Editor's note: Although the three stocks listed above trade as ADRs, Neil George, as a true global investor, also recommends purchase of these issues directly from their foreign exchanges. Pernod trades in France (symbol: RI) and is rated at buy up to FF 105.  Allied Domecq trades in London (symbol: ALLD) and is a buy up to GBP 4.73. Diageo also trades in London (symbol: DGE) and is a buy up to GBP 9.50.)

Vahan Janigian adds, “Anheuser-Busch (BUD NYSE) traces its origins back to 1875 and ranks among the top US companies for brand recognition. It has a family of well-known names, including Budweiser, Michelob, Busch, King Cobra, Hurricane Malt Liquor, and O’Doul’s. New products include Michelob Ultra, a low-carbohydrate light beer for the weight-conscious. The company also entered the alternative beverage market with an energy drink named 180. This category may prove to be a high-growth opportunity over the next decade.

“BUD reported record sales and earnings for the second quarter and the first half of 2002. Net sales for the second quarter rose 5% to $3.6 billion. Net income increased 12% to 66 cents per share, up from 58 cents a year ago. This was the company’s 15th consecutive quarter of double-digit earnings growth. Like most beer and spirits companies, BUD has held up well in the bear market. With the release of a recent scientific study arguing that the health benefits of beer may actually outweigh those of wine, we think BUD still has room to run. Belly up to the bar and order some shares now.”

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