Beer stocks have a number of qualities that make them attractive investments. First, they manufacture a recession-resistant product, as beer sales hold up very well during economic downturns. Beer stocks are also highly profitable, with brand loyalty and pricing power. In addition, many beer stocks have high dividend yields.

For example, Ambev (ABEV) has a 5% dividend yield. The company has a large portfolio of popular brands and generates strong cash flow. Ambev also offers investors exposure to several high-growth international markets.

Business Overview

Ambev is the largest brewer in Latin America, with a market capitalization of $75 billion. Ambev operates as a producer and distributor of alcoholic and non-alcoholic beverages. Its main business is beer, with brands including Skol, Brahma, Antarctica, Quilmes, Labatt, Presidente, and more. It also has a licensing agreement to produce and distribute Budweiser, Stella Artois, and Corona in South America. Currently, Ambev has operations in 16 countries.

Ambev is an attractive investment for investors taking a closer look at beer stocks, because of its strong brand portfolio and international exposure. The company has a virtual monopoly in several countries with 68% market share in Brazil, 81% in Argentina, 96% in Bolivia, 90% in Paraguay and 95% in Uruguay. Among these are multiple high-growth emerging markets, which have excellent long-term potential.

Ambev reported second-quarter financial results on July 25^th. The company reported a strong quarter, with 7.2% total revenue growth. Volumes increased 0.8%, while growth in net revenue per hectoliter rose by 6.3%.

The company reported high growth rates across many of its key markets. Sales increased 7.8% in Brazil, 11.6% in the Central America/Caribbean segment, and 10.6% in southern Latin America. Overall, earnings per share increased 17% for the quarter. This high growth has directly benefited shareholders, as the company pays a compelling dividend.

Based on expected earnings per share of $0.21 in 2019, Ambev stock trades for roughly 22 times EPS. This is an above-average valuation multiple compared with other peers in the beer industry, but Ambev arguably deserves a higher multiple due to its strong growth rates. Therefore, even with a steady P/E ratio going forward, Ambev could generate high shareholder returns over the next five years, through dividends and EPS growth.

Final Thoughts

Ambev gets high marks for its competitive advantage, which is its industry leadership position in much of Latin America. The company has an impressive production network, consisting of more than 30 breweries ranging from the north to the south of Brazil. Ambev operates verticalized factories, which helps keep production and distribution costs low. Ambev is not recession-resistant as alcoholic beverages are mostly a consumer discretionary purchase.

Ambev has unique risks, due to its international exposure. But for investors willing to take the risks, it could generate strong outperformance due to its earnings growth and dividends.