Your Business: Four stable industries in turbulent times – an investment strategy

The market is a bubble akin to the real-estate market of 2005, ready to burst and drag share prices down 20% or more.

By HAROLD GOLDMEIER
The floor of the New York Stock Exchange (photo credit: REUTERS)
The floor of the New York Stock Exchange
(photo credit: REUTERS)
If you are caught in the web of not knowing which market analysts to believe, I recommend four industries in turbulent times. They offer stable waters for small investors who want to grow a nest egg with downside risk.
Analysts are making heads spin. The market is a bubble akin to the real-estate market of 2005, ready to burst and drag share prices down 20 percent or more.
Or the market will hit 3,000 because the US economy is nearly back on track and Europe is settling.
The four industries I recommend are the paint industry, which I discussed in a previous column, the alcohol and spirits industry, the dairy industry and the guns and ammunition industry.
This column discusses the alcohol and spirits industry.
Multinational alcoholic beverage corporations are vertically integrated and offer share-price stability and acceptable dividend yields. Aggressive investors look to smaller distillers and craft brewers for growth and acquisition potential.
Alcohol stocks are noncyclical and weather fluctuations in economies well. Managements are masters at distribution and marketing. Innovative R&D develops drinks for every pocketbook, with flavorful tastes for designer beers, liquors, sodas and ciders. Craft-beer brewers underpin growth in beer sales. Alcohol content varies from near nothing (1.6% in Shandy beer) to 101-proof (Wild Turkey) and meets demands at both ends of the consumer market.
Companies market products that appeal to the tastes of women, age brackets and ethnic groups. Consideration is given to religious standards. Beers and liquors are certified kosher. Murree Brewery, on the Karachi Stock Exchange, produces in a Muslim country and sells in Europe and the Middle East.
Diageo plc shares sell in the $120 range. Its dividend yields 2.18%, and its 52-week high was $134. Sales over the last 12 months are up over 6%, and income growth is 27.2%. Diageo nearly doubled its stake in India’s largest spirits maker to expand its global reach.
It is deep into Latin America and the Asia Pacific markets and sits atop the alcohol market in the US and in Europe with premium brands.
InBev is now over $110 per share, and its dividend yield is 2.5%. Sales are growing at 8.6%. A drag is $50 billion in debt from acquisitions, which means an investor should wait for a dip in its share price.
You can get a list of alcohol and soda stocks – including the latest trade prices, -week range, PE, EPS and market cap – from Profitquotes.com.
Craft beers are the fastest growing segment of the alcohol industry. They produce small batches that use natural ingredients with unique flavors. Craft beers are sold in limited geographical areas, and many breweries owned by founders are linked to restaurants.
Goose Island in Chicago is perhaps the most famous craft brewery. It opened in 1988 with two brewpubs. It produces about 17 styles, including Urban Wheat and Honker’s Ales, Bourbon County Stout, root beer and soda.
Craft Brew Alliance was formed from mergers of several craft breweries in 2008. Net sales grew in the first six months of 2014 by 17% with the introduction of new beers. Gross margin rose to 32.8% because management made “significant advancements in our brewery efficiency and utilization and supply chain.”
Big Rock Brewery has about 20 craft brand beers, ciders and seasonal brews for the Canadian market.
The stock is off a high over $17 in January and pays a dividend yield of 5%. Big Rock is a company with shares that sell at a reasonable price, and it is attractive to big breweries that want quick distribution in most Canadian provinces.
Alcohol stocks are sometimes referred to as sin stocks. Parodying Dr. Seuss and a tribute to Shel Silverstein at Shlafly Beer’s Freakers Ball: “I do not drink craft beer and ale! I do not drink them, Sam-you fail.
You do not drink them. So you say. Try them! Try them! And you may.”
Dr. Harold Goldmeier is the managing partner of Goldmeier Investments LLC and an instructor of business and social policy at the American Jewish University, Aardvark Israel Gap year Program, Tel Aviv.