Tuesday, July 31, 2007

Three International Food and Beverage Plays to Get Away from US Credit Concerns

With the United States suffering a credit crunch, people are suggesting that investors get out of financials and into consumer staples, and companies with international exposure such as Kraft (KFT) or Procter and Gamble (PG). While this is a good idea, another good play would be to play sectors which have a very low correlation to US Financials. Why not invest in international food and beverage companies which are more levered to the economy they serve?

Here are three interesting international food and beverage stocks:

1. Central European Distribution Corporation (CEDC):

CEDC is the largest vodka producer in Poland by value and produces the Absolwent, Zubrowka, Bols and Soplica brands, among others. CEDC currently exports Zubrowka to European and Asian markets. CEDC imports many of the world's leading brands to Poland, including brands such as Remy Martin, Metaxa, Jim Beam, Sauza Tequila, Grant's, E&J Gallo, Sutter Home, Torres, Penfolds and Concha y Toro wines, Corona, Foster's, and Guinness Stout beers and Evian.

CEDC is also benefitting from a strong Polish economy, growing at a good 6.4% rate in the 2nd quarter of 2007. They are even getting Russian exposure, as they recently announced their intent to acquire a significant majority interest in a Russian company which owns the number one premium vodka brand in Russia, Parliament Vodka.

This $1.65 Billion company has a Forward PE of 20.48, and a five year estimated growth rate of 17.5% for a reasonable PEG of 1.17. It is near its 52 week high and there are currently only five analysts covering the stock.

2. Wimm Bill Dann (WBD):

Wimm Bill Dann is a $4.14 Billion Russian Food company offering a range of branded dairy, juice, water and baby food products. It has a forward PE of 20.35, a five year estimated growth rate of 35% for an inexpensive PEG of 0.58 (less than 1 is very cheap).

According to the company, Wimm Bill Dann produces its dairy products in the region where they are consumed. Also, from 1999 to 2003, Wimm Bill Dann had modernized. Prior to 1999, Russia suffered a deficit in raw milk, particularly a deficit in high quality raw milk. The number of head of cattle had diminished while productivity had not grown quickly enough. So Wimm Bill Dann invested in modern Swedish milking and refrigeration equipment and later, invested in harvesting equipment. This modernization program reaped benefits greatly increasing the percentage of high quality milk.

Wimm Bill Dann also has a 20% share in the Russian Juice Market (as of 2005).

TheStreet.com's Ratings consistently rates Wimm-Bill-Dann as one of their top five fast growth stocks.

3. Ambev (ABV):

Ambev is a $43 Billion Brazilian company that produces, distributes and sells beer, carbonated soft drinks and other non-alcoholic and non-carbonated products principally in Latin America. It also bottles, sells and distributes PepsiCo International products outside of the United States. The company has a forward PE of 20.76, a five year estimated growth rate of 13%, for a reasonable PEG of 1.59. The company even has a forward yield of 1%, and only three analysts cover the stock. Institutional ownership of this stock is only 19.80%.

Ambev has an Operating Margin of 29.25%, greater than competitors such as Formento Economico Mexicano (FMX) of 13.2%.

The company Quilmes Industrial (LQU) is a subsidiary of Ambev.


After reading and studying the three companies, I hope that you feel like you are in another world, far away from any United States credit problem. Central European Distribution (CEDC), Wimm-Bill-Dann (WBD), and Ambev (ABV) are three great ways to get away from it all.

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