Investing in the World’s Best Commodity
- Is Beer a Commodity?
- The Monopoly of Beers
- Do You Own the World's Best Brewer?
There's an Egyptian proverb that says, "The mouth of a perfectly happy man is filled with beer."
And if you're like me, you spent many days and nights of
your youth as a perfectly happy man. I'd like to invest in the
likelihood that tomorrow's youth will continue drinking prodigious
quantities of beer.
Okay, so beer technically isn't a commodity. It's a product - technically any good that's manufactured - but there are some investment implications that relate directly to the prices of certain commodities. Could they be the best "commodities?" I guess that's a matter of opinion...
There are many commodities that go into making beer - the most important being water, but also barley and hops.
To back up for a second: the thesis of this letter, one that I'm constantly re-checking and analyzing for cracks and leaks, is that commodity prices will advance while the broad market in stocks continues to waver, and world currencies suffer from inflation.
So, in order to make profitable investments in beer, it's important to find a company that is able to gain a competitive pricing advantage against its rivals. I believe that commodities will rise in price, but I'm also equally certain that people (such as myself) will continue to drink beer even in the worst case scenarios imaginable.
If I were to design the world's most perfect beer company from the ground up, I'd want it to be completely vertically integrated, with control over every aspect of its production, distribution, and marketing.
It should have its own barley and hop farms, so that it wouldn't have to bid for these commodities on the open market.
Those two crops have experienced massive price swings over the past 5 years. Poor hop-crop yields in 2007 and 2006 spurred prices to rise ten-fold in 2008.
Barley prices also jumped: more than 200% between 2005 and 2008, from about $88 a metric tonne to over $241.
So a company that can control those costs by growing their own supply has a distinct pricing advantage.
Ideally, I'd also want this brewery to have its own shipping, bottling, marketing, and own all of its property.
If it's not too much to ask, it would be great if this brewery had instant global brand awareness synonymous with quality, drinkability and consistency.
The other big costs for breweries are obviously energy and labor - but without producing and refining oil, or inventing robots that can do the jobs of men, there's no way to significantly cut those costs.
And today, there is such a company that has its own barley and hop production, its own in-house shipping, bottling and marketing sectors, and worldwide brand appeal.
I'mtalking about Anheuser-Busch InBev (NYSE: BUD).
Yes, this company was acquired by Belgian booze giant InBev, but it's basically the same company.
And while I'm not a huge fan of their particular line-up of beers, I love the company. It has five of the top ten selling beers in the world, including Bud Light and Budweiser hanging on to the #1 and #2 spot.
That's just a dominating product lineup. It's so impressive that there's really no precedence for it.
BUD is one of those blue chip companies that should have a place in everyone's portfolio. And right now it's a great way to play rising commodity prices of all kinds. It already has a size advantage over every other brewery on the planet - but beyond that, it can keep production costs low because it's vertically integrated. It's probably the closest thing to a monopoly in the world right now.
You should buy this company on any weakness.
Right now is the perfect time to buy BUD because it's close to its year-to-date lows. It's currently selling for just over $48, but if it dips below that mark, it's a true bargain.
Normally I'd talk about some other relevant stocks in the sector, but for my money I don't think you can do any better.
The stock portfolio of a perfectly happy investor probably has more than a few shares of BUD.
Good Investing,
Kevin McElroy
Editor
Resource Prospector
