Novice Investing - Budweiser, wise choice?

Date: Monday 01st 2008f December 2008 05:27:04 PM

Budweiser, wise choice? - 10/07/2005

By: Novice Investing Staff

The maker of Budweiser, Anheuser Busch (BUD), caught our attention as stock price reaches 52 week low recently. As turnaround investors, we are on the lookout for stocks that are hitting new low and research it from there.

Unlike other common stock that we have reviewed, BUD doesn't seem to have ongoing problems on its business operations. For example, Taser International and Fannie Mae are undergoing SEC investigations while Lexmark International had a tough time performing up to expectation. BUD? We have never read of any news that indicated execution problems or SEC investigation. BUD stock price drops lower slowly but it is now at 52 week low, nevertheless.

What is BUD's primary line of business? Basically, BUD sells all kind of beer that you see in the supermarket and convenience stores. Furthermore, since it controls about 50% of US beer market, its distribution channel is deep and attractive. Having a deep moat such as these, helps BUD achieve an insane Return On Equity of 75%. No wonder Warren Buffett holds a sizable stake in the company.

Let's take a look at the balance sheet, shall we? BUD has a negative net cash of $ 8.14 Billion, or $ 10.48 per share. Gasp ! For comparison, last year, BUD earned $ 2.88 per share. It takes BUD about 3.5 years to erase that debt ! Is BUD overleveraged? It is, for our taste. While BUD business historically was stable, its competitors may not. Miller or Coors might do something creative and steal BUD's market share. Who knows what they might come up with? They aren't successful thus far. But, in three and a half years, a lot of things might happen. Furthermore, the market for beer cannot grow forever. BUD already has 50% of the market share. The market share is for BUD to lose and for its competitors to gain.

Keep in mind that BUD has a wide moat for its business. However, for investment, we prefer BUD at a lower price, or when it has paid off some of its debt

END

For preliminary research, you can browse our collection of annual reports here

You can also view other helpful commentary by clicking here

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Anheuser Busch Companies Inc. (BUD) or other securities.

[Resources] [Forum] [Link Partner ] [Novice Investing Directory ] [ Submit Your Article Here ]