Bottoms up: Invest in Brazilian beer

Here's a good swig of an emerging market: AmBev has huge growth potential in a country where beer consumption is rising fast.

By Jim J. Jubak Jan 13, 2010 1:54AM

Jim JubakI think this one fits the recommendations for how to invest in emerging markets that I laid out in my Jan. 7 post.


AmBev, or Companhia de Bebidas Das Americas  (ABV), is the largest beer company in Brazil and the fourth-largest in the world. Its 70% market share in Brazil gives it huge exposure to growth in that country's domestic economy.


And Brazil isn't a bad beer market to dominate. Beer consumption is forecast to grow by 22% from 2008 to 2015, which ranks Brazil as the second-fastest-growing beer market in the world behind China.


Through its 100% ownership of Quinsa, AmBev sells the leading brands in Argentina, Uruguay, Paraguay, and Bolivia. AmBev owns Canada's Labatt. The company is also the largest Pepsi bottler outside the United States, which gives AmBev huge volumes to feed through its distribution system. 


Those volumes plus huge market shares plus a rigorous cost-cutting culture has made AmBev one of the most profitable beer companies in the world with a huge 37.8% core operating margin in 2008.


That's 15 to 20 percentage points higher than at competitors, according to Morningstar. 


AmBev is controlled by AB InBev (AHBIF), the largest brewer in the world, which owns 84% of the voting stock. The two companies trade as separate public companies. (InBev looks like it will soon acquire full control of Mexico's Grupo Modelo, which will give the combined companies increased clout in heading off any challenge from Heineken, which has just bought Mexican brewer Femsa. Femsa sells the Bavaria, Sol, and Kaiser brands in Brazil.)


AMBev shares currently pay a dividend of a little more than 2%. As of Jan. 13, I'll be adding these shares to Jubak's Picks with a target price of $118 by October 2010.


At the time of this writing, Jim Jubak didn't own shares of any stock mentioned in this post. He plans to buy shares of AmBev three days after this is posted.

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