In this segment from Industry Focus: Consumer Goods, the cast continues with its theme week as financial analyst Gaby Lapera sits in on the show to hear stock pitches from analysts in each sector. In this case, Sean O'Reilly returns to the world of consumer and retail with a bullish view of Anheuser-Busch InBev (NYSE:BUD). Tune in to learn why this massive brewing company is a major stock on his radar.
A full transcript follows the video.
This podcast was recorded on Feb. 7, 2017.
Vincent Shen: Getting started -- and I've always wanted to do this -- in the blue corner, Sean, standing in at about $178 billion market cap, from Leuven, Belgium, with over 150,000 employees, the king of beer, Anheuser-Busch InBev.
Sean O'Reilly: Did you see that commercial in the Super Bowl, by the way?
Shen: I did not.
O'Reilly: Everybody needs to go to YouTube, type in Budweiser Super Bowl commercial -- it's a tearjerker.
Gaby Lapera: Oh, the immigrant guy who comes ...
Lapera: OK, we were talking about that commercial, that journal that he has that survived being thrown off a ship and fire, I want to buy that journal. I don't want to buy the beer. [laughs]
O'Reilly: They made paper better back then. [laughs] So, Gaby, for my consumer goods pick, I am going to seek to appeal to your love, not of anything, but of civilization. I'm going to really ham it up with this one. What is one of the first things that humans do when they develop civilizations? Certainly not weapons, those destroy civilizations. Is it canals or bridges? Maybe, but those are hard to invest in, and civilizations have existed without them. Housing? Sure, but that's pretty cyclical, as we saw in 2008. No, the way to truly generate strong, long-term returns for your portfolio for years to come is to invest in that most sainted of civilizational characteristics: beer brewing.
I first came to this idea last year, when I saw an article on Google news about a 5,000-year old brewery that was just unearthed in central China. I was immediately like, "This is kind of what humans do." You, I believe you have a master's degree in anthropology?
Lapera: Yes. This isn't personal advice, right?
O'Reilly: No! I'm just saying, you know full well that this is a global tale, and quite frankly, there is nothing the ancient Greeks love more than wine, right?
Lapera: That's true, that's true.
O'Reilly: That is why, today, I want to talk to you about AB InBev. This is the world's largest beer brewer. I don't even wish to build my case around any of AB InBev's extremely attractive financial metrics. These may or may not include a current 3.8% dividend yield, which on its own compares nicely to the 8% long-term average returns that you can expect from the stock market. It also happens to be more than supported by $10 billion a year in free cash flow. Pretty good. Its return on equity has averaged a more than respectable 22.88% for the last five reported fiscal years. The sheer gargantuan size of its product offerings -- over 400 beer brands -- so you'll never get bored. The fact that it employs more than 200,000 people, and since the SABMiller acquisition closed, there you go. Or the simple fact that they operate in over 100 countries. I don't know how many there are in the world, 192 or 193, depending on the day. What I want to focus on is AB InBev's moat. Its competitive advantage is consumer monopoly. This, after all, is what's really going to generate long-term returns for you or anybody else.
As we all know, everybody's favorite investor, Warren Buffett, prefers to invest in businesses with strong, long-term competitive advantages, a brand name, if possible. It's also no coincidence that the man that merged Anheuser-Busch and InBev some years ago was Buffett's good friend, 3G Capital founder Jorge Paulo Lemann, who also happens to be the richest man in Brazil -- although he lives in Switzerland, if anybody is curious. What makes AB InBev a fantastic buy today is not only its globally recognizable brands, but its extraordinary competitive market position in fast-growing markets in South America and Africa. With the year-old purchase of SABMiller, AB InBev gained control of nine of the top 30 beer markets in the world. These include Poland, with a population of 32 [million] people, and they will have a market share of 38%; South Africa, 82% market share; Columbia, 98% market share; Australia, 37.8% market share. If anybody is curious, these are 2015 numbers; the Beer Association hasn't done it for the last year. The Czech Republic, 13 million in population, 44% market share; Peru, 95% market share; Hungary, 30%; Ecuador, 92%; Slovakia, 39%. This is in addition to all of the markets that AB InBev already dominated. This included Brazil, with a population of 200 million, and they had a 64% market share. Argentina with 80% market share, 40 million people; Colombia, 48 million people, 98% market share; Mexico, 60 million people, 51% market share; China, 1.35 billion people, 14% market share; United States, 45% market share on a population of 320 million people.
I said this in an article I wrote last year -- in a world where there are antitrust laws, and governments don't like it when there is no competition, this is as good as it gets.
Gaby Lapera has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.