You drink beer, you think about beer, you love beer. You have heard the phrase "Buy what you know" and you are willing to take the next step and buy a beer stock. Realistically, however, finding a beer that tastes great does not equate with finding a stock that will perform well in your portfolio. Here are four things beginner beer investors need to know before investing in their favorite beverage.

1. What are your options?
Despite the ubiquity of beer in America, investors have very few options for buying stock in the industry:




Anheuser-Busch InBev


King of Beers

MolsonCoors Brewing Company


Operates U.S. joint venture MillerCoors with SABMiller

Boston Beer


Maker of Sam Adams, Twisted Tea

Craft Brew Alliance


Brands include Kona, Red Hook, Widmer, Omission

Constellation Brands


Owns U.S. distribution rights to Grupo Modelo (Corona, Negra Modelo, Pacifico)



Distributes Guinness in the U.S., select beers in foreign markets



Produces brands like Heineken, Newcastle Brown Ale



Operates U.S. joint venture MillerCoors with MolsonCoors Brewing

With only eight companies to choose from, it's slim pickings for prospective beer investors. That said, keep in mind that Anheuser-Busch (NYSE:BUD) and MillerCoors controlled an outstanding 80% of the U.S. market in 2013. It's also important to note that many of the companies on this list are headquartered in foreign countries, meaning their shares trade either via American Depository Receipts (ADRs) or pink sheets, sometimes referred to as over-the-counter stocks. Beer investors will want to familiarize themselves with those concepts before buying in.

2. These companies are apples and oranges
As with many industries, these companies compete against one another using very different business models. Boston Beer (NYSE:SAM) has an extremely small international business, while Anheuser-Busch InBev is a global giant. Constellation Brands is making a killing from Grupo Modelo right now, but the rest of its business, which is primarily wine and vodka, is more or less stagnant. Investors need to look past the ubiquity of big brands like Budweiser and Sam Adams and figure out what drives profitability before investing.

3. Learn the lingo
Vocabulary is just as important as math in investing, and the beer industry is no exception to this. Here are a few of the key words beer investors need to know:

  • On-premise, off-premise: Beer sales at bars and restaurants are known as on-premise sales. Industrywide, they account for about 25% of all sales volume every year. Off-premise refers to retail locations like supermarkets, liquor stores, and convenience stores.
  • Distributors: This typically refers to the wholesalers who receive a brewer's shipments. These are the middlemen who sell products to retail and bar locations. Distribution networks are crucial to the success of every brewer, and they can vary widely from company to company.
  • Depletions: You'll see this term in the SEC filings for Boston Beer and Craft Brew Alliance. It refers to distributors' sales to retailers. In other words, if sales are high and depletions are low, it means distributors are stuck with a lot of product they aren't able to move to retailers.
  • Inventory: Obviously, finished beverage products are part of a company's inventory, but raw materials like hops and barley count, too, as does beer in the brewing process. Millions of dollars can be tied up in inventory at any given time, and each company can classify its inventory differently.
  • Package mix: Brewers sell beer in bottles, cans, and kegs. Sales by package can vary widely from company to company. For example, Boston Beer only introduced cans to its package mix last year, while more than 50% of the products MillerCoors sold last year were in cans. Margins can vary by package mix -- for example, premium products might only be sold in bottles -- and investors need to understand what their brewer offers to consumers and how that package mix can impact revenue.

4. Enjoy it
The best way to develop a clear picture of your beer stock is to read through an annual filing or two. For American stocks, that is the 10-K; for foreign stocks it's the 20-F. These can be dry documents, but once you have read a couple of them, you can focus on the more interesting business and marketing decisions these companies make on a daily basis.

The last thing you want to do by digging into this industry is ruin your love for beer. It's a great time to be a beer drinker, and it's an even better time to be a beer investor. A very mature market is clashing with a craft beer explosion, forcing traditional brewers to rethink offerings, reinvent marketing campaigns, and prove their merit all over again, and all the while beer itself is competing with wine and liquor for the hearts and minds of thirsty Americans. Drink it up.