Thin is in and Stout is out!
February 17, 2007 5:56 pm
Well that is a catchy headline but in all truth, the brewers have been on a tear for the year ending Feb 15, 2007. The headline should probably read:
“A Cheer for Beer; No Grin for Thin”. While most Americans are dieting on a regular basis (especially beginning on Mondays and the required week long January “New-Year” diet) the fact is that they are much more hooked on the long term relationship they have with a cold one after a long day. While we usually see a cyclical return to the brewers in the months approaching summertime (for obvious reasons) they have not seen any significant slowdown at all over the past 12 months. Investors have been rewarding these stocks by pushing their share prices through the ceiling and outpacing both the broad S&P 500 as well as the NASDAQ by quite significant margins. On the other hand, the companies that have the grand plans to help the human race lose unwanted, unsightly excess fat have been shedding some weight for themselves. Mainly the awful heaviness of high share prices. There is a much shorter list of companies that trade n the public markets within this sector. Perhaps the difference is the fact that most of these miracle plans just don’t work. AND come to think of it, the brewers have a much better track record with their product’s efficiency.Much of the reason for gains has been the extraordinary cost savings that have been achieved by the recent merger of Adolph Coors and Molson Brewing Company.
From the outside there has been a good deal of other companies watching this and getting ideas of their own. The King of Beers is talking with Belium’s InBev, the largest brewer in the world. While talks seem to be preliminary as reported by a Brazilian newspaper, the resulting merger would create the largest brewer by a large margin. Obviously, the benefit would be tremendous as there is many overlapping areas that could be cut as well as a union for manufacturing and distribution.Just recently, there has been an amazing surge in the shares of Molson, whose profit nearly doubled beating the analyst’s views by almost 20%. Sales volume grew this last quarter grew about 5% as they reported sales of over 10.9 million barrels of beer for the period. TEN MILLION BARRELS! So, it causes on to wonder why the weight loss companies are having problems.
Even the “lite” beers are known to add a pooch to regular drinkers. So, unless everyone is only drinking and there is no eating, then the simple should be that beer=weight gain, weight gain=diet plan, diet plan=profits for weight loss centers.Weight Watchers, the most famous of the fat burning companies has had a difficult time of it lately as earning have been rather disappointing. Investors have been moving shares down on a regular basis as there is a general feeling that there may not too much salvation for earnings. Nutrisystems shares have fallen from up high as there have been several downgrades in advance of the pending earnings release. Investors fed on the fear that caused shares to move down almost 40% in less than a month. Maybe if clients had the same results with their weight, we would see a much better earnings report.The fact was that most were way off the mark on this one though. So wrong that immediately after the report, shares were bid up over 20% as short sellers ran for cover. This particular instance of a stock’s price moving within such a broad range in a short time is reminiscent of many other market’s in which there has been frenzied selling beyond normal patterns. Then and now, there seems to be a similar catalyst that has been at the heart of the matter. These are the hedge funds that are looking to grab inside prices as they start a landslide, only to clean up later with their ability to short shares, then profit on the cover. Once they move down shares to levels that are beyond reason, they buy up shares again and catch the ride as prices retrace to normalized levels.As a smart investor, if we are able to find the sweet spot in this cycle, the opportunity for catching a ride upward is very probable. Sure, discovering the point where the stock forms a base is not always easy to recognize but it will definitively be the point from where you will profit the most into the future. Next time we will discuss the process to finding the sweet spot. Stay tuned.