2 beer giants' earnings still bubbling up

Taking Stock

Your Money

April 04, 2004|By ANDREW LECKEY

What's up in the brewing business? I'm interested in the stock of Anheuser-Busch Companies and Adolph Coors Co.

- T.R., via the Internet

There will be no crying in your suds over beer industry prospects. Both brewing giants are doing just fine, though analysts prefer the stock potential of Anheuser-Busch over Coors.

Domestic beer consumption has been relatively flat, imported beers are popular and international expansion is now crucial to growth. However, the fact that Generation Y - a huge group born between 1980 and 2000 - is beginning to come of legal age should boost the entire industry.

Competition in this mass-market business never ends. Coors is introducing its low-carbohydrate beer Aspen Edge in 11 markets, with nationwide expansion by summer's end. It battles Anheuser-Busch's popular Michelob Ultra brand introduced last year.

Thanks to price increases, profits of No. 3 brewer Coors rose 78 percent in its most recent quarter despite a decline in its U.S. beer sales. Its brands include Coors, Keystone, Blue Moon, Winterfest, Killian's Irish Red and Zima. It bought Carling Brewing in 2001.

Anheuser-Busch, the No. 1 brewer, enjoyed a record quarter, with profit up 9 percent on a modest increase in domestic sales. Budweiser, Michelob, Busch, Red Wolf, Hurricane, King Cobra and ZiegenBock are produced by the company, which also owns a stake in Redhook Ale Brewery and Chinese brewer Tsingtao.

The company's theme parks include Busch Gardens and Sea World.

Shares of Coors (RKY) are up 19 percent this year, after last year's 7 percent decline. Anheuser-Busch (BUD) shares are up 3 percent in 2004, in the wake of last year's 11 percent increase.

Anheuser-Busch holds a commanding 50 percent of the domestic beer market, aided by its outstanding distribution system and marketing efforts, while Coors has 11 percent. That gives Anheuser-Busch pricing power.

The consensus rating on shares of Anheuser-Busch is currently a "buy," according to the Boston-based First Call research firm. That consists of five "strong buys," six "buys" and eight "holds."

Coors, on the other hand, receives a weak "hold," according to First Call. That includes nine "holds," four "sells" and one "strong sell."

Anheuser-Busch earnings are expected to rise 12 percent this year, while Coors earnings are projected to rise 7 percent. That compares with the 10 percent forecast for the industry. Next year's prediction of a 10 percent rise for Anheuser-Busch compares with 7 percent expected for Coors and 11 percent increase forecast for the industry.

The expected five-year annualized gains of 11 percent for Anheuser-Busch and 10 percent for Coors compare with 11 percent anticipated industrywide.

I'm a 28-year-old investor with a modest portfolio. I'm interested in investing in Vanguard Equity Income. What's your opinion of the fund?

- F.P., via the Internet

Your portfolio would remain modest with this fund. It never makes waves and is content to provide stronger income than the stock market and better capital appreciation than the bond market.

The $2.6 billion Vanguard Equity Income Fund (VEIPX) rose 38 percent over the past 12 months to rank in the lowest one-third of large value funds. Its three-year annualized return of 3 percent puts it just below the top one-third of its peers.

Vanguard recently fired one of the fund's longtime portfolio advisers, Newell Associates, and replaced it with its own quantitative group headed by Gus Sauter and Joel Dickson. The other two remaining fund advisers are John Levin and Wellington Management's John Ryan.

Vanguard Equity Income is expected to stick with its strict value discipline, emphasizing inexpensive, high-yielding stocks in a diversified portfolio.

"This is not a great fund because it doesn't give you a lot of either capital growth or income, making it neither fish nor fowl," said Daniel Wiener, editor of The Independent Adviser for Vanguard Investors (www.adviseronline.com). "While it does offer a decent yield in this low-rate environment, it won't shoot the lights out, and I've never found it to be attractive."

Nearly one-third of Vanguard Equity Income assets are in financial services stocks, and one-fifth in industrial materials. Other significant concentrations are in energy and consumer goods. Top holdings recently were Citigroup, ExxonMobil, Bank of America, ChevronTexaco, Alcoa, General Motors, Hewlett-Packard, Caterpillar, Pfizer and Shell Transport & Trading.

This "no-load" (no sales charge) fund requires a $3,000 minimum initial investment. Its annual expense ratio is a low 0.45 percent.

Wiener believes there are better ways to achieve similar goals with Vanguard Group funds. For large-cap value stocks, he likes Vanguard Windsor II (VWNFX), while for capital gains and high income he prefers Vanguard Convertible Securities (VCVSX).

What are Ginnie Mae mutual funds?

- T.M., via the Internet

They are mutual funds that invest in pools of mortgage securities backed by the Government National Mortgage Association.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.