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A Simple Investment That Can Soar in a Recession

By Ian Davis
Monday, July 14, 2008

I'll start today's column with an incredible statistic... 48.
 
Forty-eight is how many out of every 100 domestic beers sold in America are made by Anheuser-Busch (BUD).
 
This is why, along with companies like Nike, Coca-Cola, and Harley-Davidson, Anheuser-Busch is one of the most valuable brands ever created... And it's why a Belgian brewery will most likely be the proud owner of the company.
 
On Friday, InBev – which makes Stella Artois and Beck's – got a little closer to acquiring Anheuser-Busch. InBev is the world's second-largest brewery by volume sold.
 
This consolidation talk has been bullish for the beer sector. As the following chart shows, an index of brewers is up 13% since February. The S&P 500, on the other hand, is down 10.8% over the same period.
 
 
 
This strength is a classic case of a "defensive" sector doing its job. Here's the argument: In tough economic times, consumers tend to cut down on expensive motorcycles and boats, but they'll keep drinking beer. (If they're behind on their subprime loan payments, they may even increase their beer intake.)
 
Anheuser-Busch isn't solely responsible for the Brewery Index's strong performance. Since February, Boston Beer is up 6.9%, Molson Coors Brewing is up 16.3%, and Constellation Brands is nearly flat at -1.4%. This is actually fantastic performance when the S&P 500 is cratering.
 
These shares are also doing well because speculators are betting more consolidation is in the works. Whether this consolidation happens or not, you should still consider a position in breweries. They're simply one of the steadiest sectors in the market... especially during a recession.
 
Consider that Anheuser-Busch's earnings grew from $1.33 per share in 2000 to $2.44 per share in 2003, during the dot-com crash. And here's a look at how its stock and other major alcohol distributors performed.
 
Performance from
March 2000 to March 2003
Anheuser Busch (BUD)
54.0%
Boston Beer (SAM)
81.8%
Molson Coors Brewing (TAP)
10.0%
Constellation Brands (STZ)
93.3%
S&P 500
-40.5%
 
As you can see, breweries are a solid recession investment. (They're also a phenomenal way to invest in emerging markets. A single company often dominates an emerging-market's beer industry.)
 
Brewery stocks are getting too much media attention these days (because of the Anheuser-Busch story)... so I won't be surprised if they move lower over the next few weeks.
 
However, if the takeover goes through, InBev may be an interesting investment opportunity as the world's undisputed king of beers. If you buy this stock – and others like it – you're getting in on one of the world's steadiest trends.
 
Good investing,
 
Ian Davis




Market Notes
Australia profits on climbing commodity prices... Aussie dollar at a new high.
 
$147 oil... airlines can't keep up: JetBlue, AMR, Continental Airlines, and US Airways hit new lows.
 
Financial meltdown...Fannie Mae, Freddie Mac, and Lehman plunge to new lows.
 
Earnings today... General Electric.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

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