It’s still summer here in the Great White North. So while you’re lounging by the pool or lake or wherever you do your summer lounging with a cool drink near at hand, here are six top beverage stocks that we rate as buys to wet your portfolio’s whistle.
The Investment Reporter regularly monitors 10 top beverage stocks on “The Back Page”, a weekly feature that examines the market outlook with a focus on a particular industry. Here are six beverage stocks to buy that may slake your portfolio’s thirst for capital gains over the next few years.
Since we published our March 27 issue, the top 10 beverage stocks we regularly monitor are up by an average of 7.8 per cent. This beats the corresponding 3.7 per cent drop in the S&P/TSX Composite index.
Key stock Andrew Peller Ltd. (TSX─ADW.A) and U.S. Key stock PepsiCo Inc. (NYSE─PEP) remain buys for share price gains and decent dividends. PepsiCo’s dividends rise each year.
(N.B. Key stocks in The Investment Reporter are selected by its Investment Planning Committee, and are recommended in the monthly supplement The Investment Planning Guide, as the main building blocks of your portfolio. Key stocks are not all buys at all times, but they are always attractive enough to hold for long-term income or appreciation. When a Key stock loses that degree of attraction, the Investment Planning Committee recommends it be sold and it is removed from The Investment Planning Guide.)
Non-Key stocks Lassonde Industries Inc. (TSX─LAS.A) and Molson Coors Brewing Company (NYSE─TAP; TSX─TPX.B) remain buys for gains and rising dividends. Next year, Molson’s earnings are expected to recover to $4.12 a share. Ten Peaks Coffee (TSX─TPK) remains a buy for further gains and dividends.
Four of our top 10 beverage stocks are holds because they are currently over-priced. Three are expected to earn less. Big Rock Brewery (TSX─BR) is expected to lose money and pays no dividends. The Coca-Cola Company (NYSE─KO) and Cott Corporation (TSX─BCB) face consumer pressure. But Corby Spirit and Wine (TSX─CSW.A) pays high, flat, dividends.
Top 10 beverage stock Brick Brewing upgraded to ‘buy’
Since we published our March 27 issue, Kitchener, Ontario-based Brick Brewing (TSX─BRB) shares have soared by 39.8 per cent—the most on The Back Page. While the share price is now significantly higher, Brick is attractive on some counts. As a result, we’re upgrading it to a buy. But only if you need no dividends and you can accept the risk of holding a stock that we rate
Brick is expected to earn six cents a share in the year to Jan. 31, 2016. That’s up by a half from earnings of four cents a share, last year. Based on this year’s estimate, the shares trade at an excessive forward price-to-earnings, or P/E, ratio of 27.5 times. But next year Brick’s earnings are expected to climb by a half, to nine cents a share. Based on this estimate, the shares trade at a high, but more reasonable, P/E ratio of 18.3 times.
In the three months to April 26, sales rose by 2.2 per cent, to $7.707 million. Meanwhile, all regular operating costs as a group declined by two per cent, to $7.658 million. President and chief executive officer George Croft said: “Sound cost control, improved product mix and pricing all contributed to improvement in [profit] margins and EBITDA [underlying earnings] in the quarter.”
Brick is well financed. Its net debt-to-cash-flow is a safe 1.4 times. We expect this ratio to remain favorable. For one thing, the firm’s cash flow jumped by 38 per cent, to $778,557. This exceeded investment in property, plant and equipment of $552,663.
Mr. Croft is optimistic about Brick’s outlook. He says: “The business is performing very well, and we are seeing great execution against our plan. As we head into the key summer months, we believe we are well positioned for continued strong results. Our new product introductions are resonating with consumers, Kitchener expansion is on track, and the coming changes to the beer channel in Ontario, including the introduction of beer into grocery, all seem to be clear positives for Brick Brewing.” The company has introduced more new products since then.
Management is putting its money where its mouth is. It owns 62.6 per cent of the shares. As a result, its interests are similar to yours.
Two analysts rate Brick a ‘Strong Buy’. And this top 10 beverage stock’s shares have upward momentum. We’re upgrading Brick to a buy—if you need no dividends and you can accept the risk of holding a stock that we rate ‘Speculative’.
The Investment Reporter, MPL Communications Inc.
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