This article was updated on Nov. 28, 2016, and originally published June 30, 2016.
It is a difficult task to pick a stock that would be a good choice to hold for an entire century. After all, it's hard enough picking a stock to hold for a few decades. It's even more more sobering to realize how few enterprises last anywhere near 100 years. On the other hand -- and cause for some optimism -- there are a few companies on the Big Board today that had their beginnings over 100 years ago, and that have made their shareholders billions upon billions in profits along the way. But what product, what business model, what company can we reliably say is a good bet to thrive well into the 2100s?
I believe I have the answer. But first, we need to take a trip back in time: 5,000 years into the past.
Recently, archaeologists unearthed a 5,000-year-old beer recipe in China. This find, announced in May 2016, certainly gives credence to the idea that one of the first things civilizations make, alongside rules and canals, is beer. Indeed, the find has led archaeologists to posit that barley was used for beer brewing before it was used as a food source -- that is, it helped build civilization. Clearly there's something to this brewing thing, and I'm betting this eons-old trend is going to continue well into the next century.
Thanks to mankind's love of a cold one on a hot day, and some savvy market choices recently made by an acquisitive management team, my pick for a century-long holding -- nay, the perfect company to hold for my great-great-grandchildren's benefit -- is none other than Anheuser-Busch InBev SA (NYSE:BUD). Here's why.
Positioning for a century of growth
Last year, AB InBev made a bold move by offering to purchase the world's No. 2 brewer, SABMiller (NASDAQOTH:SBMRF). The rumors began swirling of a potential deal that September, and after weeks of haggling, it was formally announced on Oct. 12, 2015, that the two parties had come to terms in what would eventually be a $107 billion deal for AB InBev to acquire SABMiller. The merger, which combined parts of the world's two largest brewers, created a Goliath with some 28.4% of the global beer market. After a long, drawn-out process, the deal was finally closed on Oct. 10, 2016. The new AB InBev has a major presence not only in the developed world but also in the developing world -- and that's why it is just the stock to own until 2116.
It's difficult for Americans to appreciate just how dominant AB InBev now is overseas. Stateside, it owns brands such as Budweiser, Bud Light, Stella Artois, and Corona. While these brands are obviously available everywhere, they're in no way monopolies; consumers can just as readily find a six-pack of Coors, Miller High Life, or a wide array of lesser-known beers. In recent decades, Americans have benefited from a robust and fast-growing craft-brew industry, with Boston Beer Co. (NYSE:SAM) as its standard-bearer. The situation overseas, however, is drastically different.
To paint the picture, I took the 30 largest beer markets in the world as of 2014 (as calculated by the National Beer Wholesalers Association, using the most up-to-date data possible), and narrowed it down to the nine nations where AB InBev had very little presence but SAB Miller was dominant. A quick glance at the list shows that AB InBev shareholders just gained a great deal of territory:
|Market||Volume (U.S. Barrels)||AB Inbev 2014 Market Share||SAB Miller 2014 Market Share||2015 Population (millions)||GDP per Capita (2015)||Est. 2015 Growth|
|2. South Africa||28.75||N/A||82%||53.68||$13,200||1.30%|
|5. Czech Republic||13.17||0.8%||43.5%||10.64||$31,600||4.20%|
The total population of the countries listed above is 234 million. They averaged a gross domestic product per capita in 2015 of $25,522 and experienced average economic growth of 2.68% that year (a year that was tough for commodity-based economies, which several of them are). With combined post-merger market shares ranging from a healthy 34.7% to an overwhelmingly dominant 99.2%, AB InBev's share in these markets will average around 65%.
Essentially, in exchange for half ownership of U.S.-based Miller Coors, which at last count accounted for about 14% of the U.S. market, and half of China's CR Snow, which has 22% of the Chinese beer market -- both of which are far more competitive than those listed above -- AB InBev gained a near-monopoly status of nine emerging markets that are almost sure to offer higher growth and greater profitability, especially when compared to the U.S. It should also be noted that CR Snow was never particularly profitable: SAB Miller's stake in it only fetched $1.6 billion, despite the fact that CR Snow is the world's largest beer brewer by volume.
Sounds good, right? It gets even better.
In addition to operating practically competition-free in the markets listed above, AB InBev will also continue to be one of the dominant players -- if not the undisputed leader -- in practically every other beer market you can think of. These include Brazil (64% market share, population 200 million), Argentina (79% market share, population 41.5 million), Colombia (98% market share, population 48 million), South Korea (56% market share, population 50 million) and Mexico (51% market share, population 60.5 million). And of course, one can't forget the United States (45% market share, population 320 million), and China (14% market share, population 1.35 billion).
In a world with antitrust laws and competition regulators, this is just about as good as it gets.
The long, long term
I want to tackle the financial portion of my case in two parts: first, by examining the traditional financial metrics, and then with more speculative task of considering future profitability. Obviously, the latter is tricky, but that's what investing is all about.
First, here's a brief overview of AB InBev's financial results and valuation compared with some other companies that offer similar long-term economics and business durability:
|Company||5-Year Average Return on Equity||5-Year EPS Growth Rate||Forward P/E||5-Year Estimated EPS Growth Rate|
|Procter & Gamble||14.98%||0.6%||22||6.8%|
|John & Johnson||19.7%||9.46%||16.9||6.44%|
There are not many mammoth, strong organizations with great financial histories that trade at such reasonable valuations. What's more, all of the above businesses make for great super-long-term holding candidates. But as noted earlier, there are very few products that you more or less know humans will be consuming a hundred years from now. Beer is one of those products. It's that simple.
All the more attractive is AB InBev's current 3.9% dividend yield, higher than any T-bill offers. These dividend payments, as well as the company's admittedly high debt load (which is partially a product of the SAB Miller buyout), can be more than handled by the company's sizable free cash flow (FCF) generation. In fiscal 2015, AB InBev generated FCF of $9.37 billion, and SAB Miller threw off $2.33 billion. Even assuming no cost savings or synergies from the merger, that's a combined $11.7 billion in annual free cash flow to tackle the company's admittedly sizable debt load.
All told, AB InBev's strong competitive position, coupled with over $1.85 billion in estimated annual cost savings, builds a strong case for a long runway of profitability -- but is it enough to make it a stock to own for 100 years?
The thing with investing for the ultra-long-term is that, as we have seen time and time again, fancy spreadsheets that attempt to project profits well into the future are basically pointless. The best types of investments are those in companies that have, in Warren Buffett's parlance, a durable competitive advantage. Buffett would be the first to tell anyone who will listen that, despite his mathematically inclined mind, he has never once done an analysis of discounted cash flow or long-term earnings on any of his investments. To pass as an investment for him, its rationale needs to be glaringly obvious.
You might be thinking that Alphabet, Apple, and Amazon.com are equally great contenders for century-long holdings, but I would caution against that assertion. These are exceptional organizations, to be sure, and I certainly wouldn't bet against Google's parent being around in 100 years -- but I also know what relentless competition can do to the strongest of companies. Don't forget that in 1973, Sears (NASDAQ: SHLD) built the world's tallest building in Chicago, to show off its status as the world's largest retailer. Look how that turned out.
Foolish bottom line
The companies that last the longest, that generate profits for their owners decade after decade despite wars and depressions, are often built around simple, consumer-facing product brands. Think Coca-Cola, Gillette (now part of Procter & Gamble), Clorox, and of course, Budweiser.
Who knows what the world will be like in 100 years: Will we have a thriving colony on Mars, as Tesla's Elon Musk desires? Will we be mining asteroids and spending our leisure time in virtual-reality simulations? Your guess is as good as mine. But humans have been drinking beer for thousands of years, and I think it's safe to say that they'll probably be drinking it in 100 more. And there AB InBev will be: after a long day of asteroid mining near Saturn, providing citizens of the worlds with a cold one.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Anheuser-Busch InBev NV, and Boston Beer. The Motley Fool recommends Coca-Cola and Johnson and Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.