This Company Has All the Traits of a Warren Buffett Investment

Anheuser Busch Inbev SA (NYSE: BUD  ) has many of the traits that Warren Buffett looks for in a great long-term investment. Now, this is not meant to be a 'would Buffett buy' style article; I simply want to show the great competitive advantage Anheuser Busch has in the global beer market and the fact that the company has all the traits of a great long-term buy and forget investment. 

The global beer market has four main players: Anheuser Busch, SABMiller (NASDAQOTH: SBMRY  ) , Miller Coors, and Heineken (NASDAQOTH: HEINY  ) , while the rest of the market is highly fragmented. And by highly fragmented I mean that the rest of the market is populated by many small brewers that offer popular brands in their local markets.

However, Anheuser Busch controls around 18% of the global beer market, and the world's top four brewers, those listed above, plus Carlsberg, now account for over half of the global beer market . In particular, SABMiller's share of the market is just under 10%, and Heineken's share stands at just under 9%. This cool chart shows Anheuser Busch's dominance over the US beer industry in particular.

What's more, Anheuser Busch's market dominance means that the company is the No. 1 or No. 2 brewer in the majority of the world's largest beer markets. The company also has 14 'billion dollar brands' under its umbrella, brands that have sales of more than $1 billion annually. In total, the company has well over 200 brands.

Anheuser Busch' dominance over the global brewing industry is impressive and a highly desirable trait in any business. It is unlikely that the company will be displaced from its position at the top of the industry anytime soon .

Built on brands
Of course, none of these companies would have been able to ride to these dominant positions within the industry if it were not for popular beer brands. Both SABMiller and Anheuser Busch own some of the most popular brands in the world. Anheuser Busch for example owns the Budweiser brand, which during 2012 was the world's third best selling beer. However, the world's best selling beer was Chinese brand Snow, which is owned by SABMiller.

Still, Anheuser Busch does own several of the top ten best-selling beer brands by volume as of 2012, which gives the company an edge over SABMiller's Snow .

Barriers to entry
Of course, something Buffett likes to look for in an investment is a 'wide moat,' and the moat around Anheuser Busch is both wide and deep. As I have written above the beer market is dominated by four main companies, but as I have also written above, Anheuser Busch is the biggest of these giants. Anheuser Busch's sales totaled $39.8 billion during 2012 and it will be exceptionally difficult for any prospective competitors to elbow their way into the market. Additionally, any competitors would have to contend with Anheuser Busch's multi-billion dollar marketing budget.

So what?
So why is Anheuser Busch a company that Buffett would like to buy? Well, in addition to the reasons I have mentioned above, Anheuser Busch has plenty of room to grow in the future. What's more, the company has regularly been tipped to be looking at acquiring SABMiller , which would create an entity that controls nearly one third of the world's beer market. Many companies would love to have this much dominance over the industry. Additionally, much of the beer industry is still fragmented, so Anheuser Busch has plenty of smaller regional peers it could bolt-on for additional growth.

Having said all of that, Anheuser Busch lacks the value qualities that Buffett looks for in an investment. Still, we know Buffett is willing to pay for quality, which we saw with the Heinz acquisition. However, even though Anheuser Busch does not have the value qualities Buffett looks for, the company is extremely dominant in its industry and looks like a great long-term investment.

Foolish summary
So overall,  Anheuser Busch has many qualities that make the company look like an attractive long-term buy and forget investment. Of course, the company is way too big to be acquired by Buffett and Berkshire Hathaway right now, but it has all the traits that Buffett usually looks for in an acquisition, apart from an attractive valuation. Still, Anheuser Busch should continue to be at the top of its industry for some time to come, and it looks like a solid long-term investment for any investor. 

Should you own Anheuser Busch forever? 
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  • Report this Comment On November 15, 2013, at 11:28 AM, PEStudent wrote:

    I disagree with the "barriers to entry" claims.

    If the barriers to entry were so great how do beers like Sam Adams expand so strongly?

    If being a giant and having a large marketing campaign cause entry problems, why are sales of major brands down over the past two years - BUD's are slightly up, yet strongly up in the special label market?

    And there have been a number of big beer failures, including Schlitz.

    As a value investor, there's definite goodwill value in the Budweiser name, but in reproducing the cost of a startup (using Greenwald, et al's, "Reproduction Costs" method instead of the "Graham-Dodd net-net" method or the "Book Value" method, I don't see much barrier in the size of advertising, beyond some point.

    As far as being a Buffett stock, he generally doesn't buy stocks whose long term debt is now 41% of capitalization compared to 18% in 2004 and one that canceled dividends for 2008, 2009, and 2010 and now offers a 1.3% dividend, about 60% of the market average.

    It's not a bad stock, though analysts expect a 6.8% growth rate over the next 5 years. That, plus the 1.3% dividend are reasonable for a P/E = 12.6 stock, but nothing to amaze anyone about.

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