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Neil George: Holiday Cheers

11/29/2002 12:00 am EST


Neil George

Editor, Profitable Investing

"One of the best places to invest right now is in the brewing industry," notes Neil George. "From spirits to suds, each of the leaders in this industry have a solid base of thirsty customers to carry them through the tough times, while also expanding their market reach around the world to cash in on growth." The editor of Total Return Advisory and contributing editor of Personal Finance offers these timely holiday picks.

"A little filtered water, some malted barley, hops, and a bit of brewmaster’s craft and you’ve got a product that’s catapulted a company’s shares above the S&P by more than 135% in the past five years alone. It’s not just beer, but the King of Beers - Budweiser, the flagship brand of Anheuser Busch (BUD NYSE). Come good times and bad, BUD continues to slog along, steadily expanding its sales. The stock might appear to be expensive at 11 times book and more than 3 times trailing revenues. But with rising sales of beer alone averaging more than 14% for the past two years, the bottom line return on shareholders’ equity is near 42%. And the company’s patience in China is paying off. BUD may also become the leading purveyor of beer in the most populous nation in the world through both its direct operations and its partnership with the local Chinese kingpin Tsingtao. Buy BUD up to $55.

"Meanwhile, Heineken (HINKY OTC), which is BUD’s chief global competitor, is largely ignored by U.S. investors, making the stock a bargain buy. Heineken continues to build its beer empire through both expansion and acquisition of local brewers. Heineken has the best of both worlds - local cash-cow products and an ongoing expansion of the Heineken brands. This has enabled the company to boost sales to levels similar to Anheuser-Busch, along with solid and expanding margins. Unlike Budweiser, Heineken is still an inexpensive stock, trading at nearly half its price-to-book value and more than a third less than BUD’s price-to-sales. And for the most conservative, Heineken maintains a lot less debt, giving it a lot more leeway if times happen to get tough along the way. Buy this bargain brewer up to $44."

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