(I am on vacation until August 24. During that period JubakPicks.Com will operate on a reduced posting schedule of one or at most two posts a day.)
The noose got a little tighter around Mexican brewer Grupo Modelo, Mexico’s largest beer maker.
On July 12 the company lost in arbitration with Anheuser-Busch InBev, the world’s biggest brewer. Grupo Modelo had sought to void the transfer to Anheuser-Busch InBev of the 50% stake of Modelo that Anheuser-Busch owned before the merger with InBev that created the beer giant.
The ruling clears the way for Anheuser-Busch InBev to eventually acquire the rest of Grupo Modelo.
AmBev (ABV), the Brazilian brewer and Pepsi distributor that’s controlled by Anheuser-Busch InBev, isn’t a direct party to any of this arbitration or negotiation. But I think this outcome works in AmBev’s favor.
First, Ambev doesn’t have much of a presence in Mexico and a deal that gave Anheuser-Busch InBev control of Grupo Modelo’s breweries and distribution network could help Ambev, the largest beer company in Latin America, expand brands like Brahma into Mexico. (That would be even more advantageous to AmBev if Anheuser-Busch InBev also wound up signing a distribution deal with the Oxxo convenience-store chain after 2020. The chain accounts for about 14% of the sales for the beer division that Heineken acquired from Femesa.
Second, the results of the arbitration and the resulting reshuffling of the players in the Latin American beer and soft drink market seems to weaken such AmBev competitors as Femesa. That would be good for AmBev’s soft drink business. The company is the largest Pepsi bottler in Latin America but only the No. 2 soft drink company in its Brazilian home market.
On the beer side AmBev is the market leader in Brazil (69% market share), Canada (42%), Argentina (76%), Bolivia (97%), Paraguay (96%), and Uruguay (97%).
As of August 2, I’m leaving my target price at $118 by October 2010.
Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio. (I used to personally own shares of Ambev but I have liquidated almost all of the individual stock holdings in my personal portfolio and put the cash in my new Jubak Global Equity Fund)
Jim,
I see this has just hit $118, do you see more up potential or is it time to sell and move onto something else?
Thank You
yx,
I am already in China, with CSKI and NIV. I may add more to my position later.
As for the market’s prospects for the rest of the quarter, I am bullish. Most retail investors will probably stay out of it, leaving the pros and HFTs to run it up.
Ed:
I saw two articles already arguing that rally in the past few weeks were good corp. report-driven. When the report season ends sometime in Aug., the market will be dominated by bad news again. Sept. will suck. I think Jim even wrote that rally usually ends in July. Then it will be bad all the way to early or mid Oct. However, I think it maybe time to buy China. I wonder when Jim will issue buy order on China. Your thought.
grindy, Are you basically suggesting that you believe there will be more quant easing in Europe than in the US in the near future? And as a result, an increase in supply of Euros compared to $? If so, I agree that’s totally possible, and yes, I agree that would be one cause for a depreciating Euro.
But my point is that even a massive quant easing by Eur is small potatoes (and unecessary) compared to what China is currently and capable of doing. As the world’s greatest creditor, they are funding Europe’s recovery in the form of a massive direct investment in their businesses, they’re flooding the continent with cheap exports, and again, all in exchange for Euros and Eur imports! In other words, China’s demand for Euros is in excess of what Europe’s printing presses can handle. How can any currency go down in this environment?
DJ,
I think we are ignoring why the Euro recovered…. Because Germany has most productive workers in the world. When the Euro is 1.2 exports will soar.
Now we look at 1.35. You have your economies with extremely uncompetitive workforces in economies of Spain, Greece, etc………. The more the Euro comes back the uglier the blood will be.
I think we should realize most of the sell-off was because of the currency swing and less to do with fundamentals. The fed saw the problem with this and I see them going back to easing to keep the economy pumping.
That being said the best thing for the US economy right now is a strong Euro.
I think I would change the timeframe out a bit if we see quantitative easing again. I think this will weaken further but do a lot of damage on the EURO. Somewhat of a double edge sword for the US.
grindy, I don’t disagree with anything you said, but I’m not sure I understand how you can ommit the big panda in the room in any discussion of the $/Euro and arrive at your conclusion to short the Euro.
Here’s the way to look at it: The US is doing everything in its power to reduce its and by far the largest trade deficit in the global econ. Couple this with China doing whatever it can to demand less $ and you most certainly have an environment for a depreciating $. Now go across the pond, and you will see pretty much the opposite part of the cycle occurring. Europe is increasing its deficit with China and in exchange, China is demanding lots and lots of Euros (and property, businesses, etc). That obviously causes an appreciation of the Euro.
Dear Jim- Enjoy your time under the sun. What is your thought on BRF these days as I see it is back to its highs again???
Thanks
Have a great vacation Jim and come back with new ideas :=)
jamba,
Nope. We may get a small correction before October, but I’m bullish this quarter, assuming nothing significantly bad happens.
djpoints,
I sold that some time ago. June maybe?
AmBev should not be listed as having 42% market share in Canada. That market share belongs to ABInBev, not AmBev. Labatt’s (Canada) and AmBev (Brazil) are both subsidiaries of ABInBev (Belgium). Or am I wrong?
DJ,
I’d much rather be sitting short Euro than dollar at these levels now. I think we will still see a little more appreciation but if it gets back to 1.35 I will go massively short.
All of the growth in Europe is because the Euro plunged. None of it is because they have fixed problems. They are in much worse shape than US. I think the only way they continue on this pace is to keep massively weakening the Euro (which helps this trade). If they don’t we will see quite a big of slowing from cuts which will produce more tax shortfalls. Fundamentally the Eurozone is much different than the US. Definitely does not have the same dynamic private sector as US does
And Ed, hows that Euro short postion working for ya?! I tried to warn you (others) that was the wrong side of that trade! Are you still short the Euro?
Ed,
The stock market has been very good lately and has started this month off well. Do you think we will have a Sept/Oct pullback?
Wish u luck all the time
Buy AmBev.
YES, ENJOY your vacation, Jim, when you return you will be refreshed from spending the time doing something completely different!
Thanks for ALL of your hardwork.
Jim – “reduced schedule” of twice a day?? What kind of vacation is that? Enjoy it as best you can!
Enjoy your vacation, Jim.
Off topic: China and rare earth metals: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7921209/Hot-political-summer-as-China-throttles-rare-metal-supply-and-claims-South-China-Sea.html
Have a great vacation Jim,
WHere did you decide to go this year?