Outskirts of Shrewd'm / Science, Technology, Engineering and Mathematics
No. of Recommendations: 6
Just wanted to share my thoughts on Anheuser-Busch InBev (ABI), which I think might be an interesting "falling knife" stock to keep an eye on.
The Good Stuff:
Global Giant: ABI is the world's largest brewer, cranking out about a third of all beer globally. In 2023, they produced 584.7 million hectoliters—a slight dip of 1.7% from 2022. They're based in Belgium but have operations in over 100 countries.
Big Brands: They've got some heavy hitters like Budweiser, Corona, and Stella Artois under their belt. Though, keep in mind that in the U.S., the rights to Corona are owned by Constellation Brands, so ABI doesn't see the benefits from Corona's U.S. sales.
Pricing Power: One of their strengths is their global reach and ability to set prices. Their gross margins are around 54%. While that's down from their historical numbers, analysts think it'll bounce back up.
Digital Push: They've been talking up their BEES digital platform, which is bringing in significant revenue through B2B channels. Personally, I'm not sold on how much digital can really shake things up in the beer world, given the nature of the product.
The Not-So-Good Stuff:
Volume Declines: Beer volumes are slipping. Overall, volumes are down 2.4%, which is a big deal. China and Argentina are major contributors to this drop. Revenue is up, but that's mainly because they're hiking prices—not because they're selling more beer. Relying on price increases isn't a sustainable strategy in my book.
Changing Tastes: Beer consumption per person seems to be on the decline. People might be shifting to other drinks or cutting back on alcohol altogether.
Debt Load: Here's a biggie. ABI took on a ton of debt to buy SAB Miller back in 2016. Even now, eight years later, lot of debt($79 billion) remaining - that's a massive amount considering their market cap is around $100 billion. Their net debt to EBITDA ratio is about 3.4, and they're aiming to bring it down to around 2. Until then, they don't have a lot of wiggle room financially.
Buyback Signals: They've got a $2 billion buyback program going, which could mean management thinks the stock is undervalued. But given their focus on paying down debt, it's a bit of a mixed signal.
Recent Developments:
Health Warnings: On January 3, 2025, the U.S. Surgeon General issued an advisory linking alcohol consumption to cancer, marking it as a leading preventable cause. While some of us might think this won't change much for moderate drinkers, the rapid spread of info on social media could have a real impact on consumer behavior.
My Take:
I've been buying shares recently in the $52 range - already down 5% or so overall. Historically, ABI traded around a 20 P/E ratio, but now it's down to about 15. I'm holding off on buying more unless it dips to around $45.
There are risks, especially with the debt and shifting consumer habits, but there might be an opportunity for those willing to dive in.
What are your thoughts?
No. of Recommendations: 3
forgot to mention - I personally think that having 3-4 beers a week isn’t likely to be harmful to your health, especially given the relatively low alcohol content of around 4%. The warning might be more relevant for heavier or more frequent consumption patterns.
No. of Recommendations: 9
I personally think that having 3-4 beers a week isn’t likely to be harmful to your health, especially given the relatively low alcohol content of around 4%.
In the short-term, I agree with this entirely. In fact there are many articles that continue to confirm that light drinking is not a problem. However, owing to second-order, and third-order effects, I'm not so sure, and I think this superficial analysis is very misleading.
As someone who never drinks alcohol, and I observe people drinking around me and how their habits change over time, I would say that those having a beers every day or two are in the higher risk category than what they may think. One can slip into more regular beers - not now, but when some life conditions change a little at some random point in the future - and then this fuels either addiction or greater ease at slipping into other addictions.
I recently saw an very wonderful former business colleague who started with just regular beers as above, which changed over time to being more frequent, and he proudly declared occasionally it was not effecting his work even when a little drunk. Then five years later, he became full addicted and it completely ruined his life (his girlfriend left, his customers left, his business deteriorated and he was on the verge of suicide). If he hadn't started with light beer drinking as the starting point, his life definitely would not have become ruined.
Those that are already addicted to alcohol are not "high risk" in this sense, as they are already addicted so any health danger propaganda will be completely irrelevant to them and just ignored.
Alcohol advertising is banned is most countries. However alcohol is legal and (for now) not looked down upon in our western cultures, a lot of that relating to a long history of state taxes taken from alcohol. Yet it actually it is a fully blown additive drug.
Alcohol is a toxic, psychoactive, and dependence-producing substance and has been classified as a Group 1 carcinogen by the International Agency for Research on Cancer decades ago – this is the highest risk group, which also includes asbestos, radiation and tobacco.
Alcohol is also a major catalyst, even if taken lightly such as having an occasional beer or two, when used in combination with other drugs, causing cardiotoxic effects.
That's nice, but sounds irrelevant to most light drinkers, as they know that drinking lightly doesn't cause health problems.
The idea that is missed is that heavy drinking (as an addiction) starts with an addiction to light alcohol drinking (that is - alcohol alone) forming the initial addiction physical pathways in the brain.
You won't slip into heavier drinking now whilst all is well, but if some difficulties arise in your life, or if you just get bored and innocently drink a few more, and then the brain starts to get heavily programmed. The addiction is completely physical of course, and not something you can control by just relying on your frontal lobe executive function.
- Manlobbi
No. of Recommendations: 4
If he hadn't started with light beer drinking as the starting point, his life definitely would not have become ruined.
You are probably not an "addict type personality", without own experience regarding addiction ("As someone who never drinks alcohol"), speaking from a theoretical point of view. I don't. And I think there is a high probability his life would have become ruined anyway.
... addiction physical pathways in the brain....... the brain starts to get heavily programmed...... The addiction is completely physical of course
Absolutely not! This is a too narrow mechanical view of addiction. The addiction becomes also(!) physical, but someone who becomes addicted to [Cigarettes/Alcohol/Sex/Ayahuasca --- whatever] usually does so because he has mental problems.
Not seeing this is like when the husband/wife had an affair saying "it just happened... doesn't mean anything". Of course it did not "just happened" and does have a deeper meaning, indicating an underlying problem in the partnership, no matter how much both might be convinced that it is perfect. It's not - otherwise it would not "just happened".
Same with addictions: Usually one gets into them if there is an underlying non-physical reason. Result: Even if an addict to substance/behavior "X" manages to get rid of his addiction to "X": As long as the underlying reason persists, the mental problem behind his tendency, he is always in danger to become addicted to "Y" instead (because he needs(!) to be addicted to [whatever]) --- and to ruin his live.
